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The Supreme Court Weighs In on Suspensions and Constructive Dismissals

Employers are often surprised to learn of the risks of constructive dismissal when suspending non-unionized employees. In a recent decision, Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada was asked to decide whether an indefinite suspension with pay constituted a constructive dismissal.

The plaintiff, Mr. Potter, was employed by the New Brunswick Legal Aid Services Commission as the Executive Director, on a seven year term commencing in 2006 and set to expire on December 12, 2012. Due to a souring of the relationship, in the spring of 2009 there were discussions between the parties of negotiating a buyout of the remainder of his contract. However, Mr. Potter went on a leave of absence for medical reasons prior to any agreement being reached.

Shortly before Mr. Potter’s return to work date, the Commission sent a letter to Mr. Potter’s legal counsel advising that he should not return to work “until further direction” was provided by the Commission. At this time, the Board of Directors of the Commission also sent a letter to the Minister of Justice recommending that Mr. Potter be dismissed for cause. Although Mr. Potter’s legal counsel requested more information on his suspension, none was given. Eight weeks into the suspension Mr. Potter filed an action for constructive dismissal.

The lower courts found that this paid administrative suspension did not constitute a constructive dismissal. This was overturned by the Supreme Court of Canada.

In coming to its decision, the Supreme Court reviewed the law on constructive dismissal. The Supreme Court noted that a constructive dismissal can take two forms: a single unilateral breach of an essential term of the contract of employment or a series of acts that taken together show an intention by the employer to no longer be bound by the contract.

It reasoned that there are two branches of the constructive dismissal test:

  • The first branch applies where there is an alleged breach of the specific terms of the contract. A constructive dismissal will be found where: (1) there is a unilateral change by the employer that constitutes a breach of the employment contract, and (2) the breach substantially alters an essential term of the contract.  At this second step, the court will determine whether a reasonable person in the same situation as the employee would have felt that the essential terms of the contract were being substantially altered.
  • The second branch focuses on the conduct of the employer. It requires a more general analysis of whether, when all the surrounding circumstances are considered, a reasonable person would conclude that the employer no longer intended to be bound by the terms of the contract.

Applied to Mr. Potter’s case, the Supreme Court found that there was no express or implied contractual right to put Mr. Potter on an administrative suspension. The Court determined that in order to find an implied right to place an employee on an administrative suspension, the employer’s decision to suspend must be both reasonable and justified. The employer must be able to demonstrate that they have acted honestly and in good faith.  The Court found that the Commission’s decision was not reasonable or justified. The Commission failed to provide Mr. Potter with any reasons for the suspension, the suspension was for an indefinite duration and the Commission had taken steps to terminate his employment for cause.

The Court also found that it was reasonable for Mr. Potter to perceive the suspension as a substantial change to the contract of employment, in light of the fact that the suspension was for an indefinite duration and no reasons were provided for it.

This case makes clear that an employer must have a valid business reason for putting an employee on a paid suspension. The fact that the employee continues to receive pay does not on its own provide the employer with an implied right to suspend. The case also emphasizes the need for clear communication with the employee about the reasons for the suspension. The employer must act honestly and in good faith. Intentionally withholding the reason for the suspension or being ambiguous about it could lead to a finding that the suspension was unauthorized.

The Supreme Court has not disturbed the implicit right of employers to impose a reasonably short-term, paid suspension pending investigation of a discernible issue or incident, provided the employer is acting honestly and in good faith.  But this decision highlights the need for such investigation to be handled with reasonable pace and in good faith, lest the suspension be found a constructive dismissal.