Alisha joined Kornfeld LLP as an associate in 2015 after completing her articles with the firm.
Shafik Bhalloo has been a partner of Kornfeld LLP since 2000. His practice is focused on labour and employment law, and on commercial and civil litigation. He is also an Adjudicator on the Employment Standards Tribunal and an Adjunct Professor in the Faculty of Business Administration at Simon Fraser University.
The Potter Decision – When an Administrative Suspension Goes Too Far
By Alisha Parmar and Shafik Bhalloo
The Potter Decision – When an Administrative Suspension Goes Too Far
Constructive dismissal is a fascinating concept for employment lawyers, employees, and employers alike. When an employer is found to have “constructively dismissed” an employee, it means that the law characterizes the employer’s conduct as amounting to dismissal. Whether or not the employer intended to dismiss the employee, a finding of constructive dismissal can have significant consequences – an offending employer will be liable for damages in lieu of the notice that ought to have been provided to the employee when she was dismissed. Thus, it seems all the more important that the law governing this legal creature be well-defined, lest an unwitting employer accidently “dismiss” an employee.
In Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (“Potter”), the Supreme Court of Canada recently provided an in-depth examination of how the test for constructive dismissal is to be applied and the rules of evidence for each branch of the test. Further, in the context of administrative suspensions, the decision explicitly recognizes that an employer must provide legitimate business reasons for suspending an employee – otherwise the employer might be constructively dismissing the employee.
As background, an administrative suspension is the broad ability of an employer to temporarily discontinue an employee’s work in a non-union workplace for administrative reasons. This stands in contrast to a suspension for disciplinary reasons. Further, in this case, the administrative suspension was not for administrative reasons unrelated to the employee’s conduct. To clarify, the reason for an administrative suspension may be that there is an economic downturn or something else unrelated to the employee – this was not the case in Potter.
The Two Branches of the Legal Test for Constructive Dismissal
Previously, in Farber v. Royal Trust Co.,  1 SCR 846 (“Farber”), the Supreme Court of Canada had held that:
A constructive dismissal occurs where an employer makes a unilateral and fundamental change to a term or condition of the employment contract without providing reasonable notice of that change to the employee.
In Potter the Court further recognized that there are two branches of the test for constructive dismissal. First, the employee may demonstrate that the employer breached an express or implied term of the contract and then show that the breach was serious enough to constitute constructive dismissal. The majority explained that a sufficiently serious breach is one which “substantially alters an essential term of the contract” or evinces an intention on the part of the employer to no longer be bound by the contract. As explained in Farber, this involves asking the question whether a reasonable person in the same situation as the employee would feel that the essential terms of the contract were altered.
Under the second branch, the employee may prove more generally that the employer intended not to be bound by the employment contract, even without showing that there was a breach of a specific term. This branch takes a retrospective look at whether the employer’s cumulative past acts evince an intention to no longer be bound by the contract. The question under this branch is whether a reasonable person in the position of the employee, in light of all the circumstances, would conclude that the employer no longer intended to be bound by the contract.
Constructive Dismissal in the context of an Administrative Suspension
Notably, the majority explained that under the first branch in the case of an administrative suspension, the burden shifts to the employer to show that a breach of the employment contract has not occurred. In order to do this, the employer must show that there were legitimate business reasons for the suspension:
In my view, legitimate business reasons constitute a requirement for a finding that an administrative suspension based on an implied authority to suspend is not wrongful. Other than in the context of a disciplinary suspension, an employer does not, as a matter of law, have an implied authority to suspend an employee without such reasons. Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension.
Thus, without legitimate business reasons for the administrative suspension, the employer fails the first part of the test, and the analysis moves onto whether the unauthorized suspension constitutes a substantial breach. This involves considering whether a reasonable person in the employee’s circumstances would have perceived, inter alia, that the employer was acting in good faith to protect a legitimate business interest, and that the employer’s act had a minimal impact on her in terms of the duration of the suspension.
Application to the Facts
In Potter, the plaintiff employee was appointed the Executive Director of the New Brunswick Legal Aid Services Commission for a seven year term. About half-way into the term, the plaintiff and the defendant began negotiating for a buyout of the plaintiff’s employment contract. However, prior to the conclusion of these negotiations, the plaintiff delegated his responsibilities to another director and went on medical leave.
Following this, the defendant unilaterally decided to put a deadline on the buyout negotiations. If the negotiations were not resolved prior to a certain date, the defendant’s plan was to make a request to the Lieutenant-Governor in Council to revoke the plaintiff’s appointment for cause. A week before the plaintiff was scheduled to return from medical leave and unbeknownst to the plaintiff, a letter was sent to the Minister of Justice by a representative of the defendant requesting that he be dismissed for cause. On the same day, the defendant’s solicitor sent the plaintiff’s solicitor a letter which effectively placed the plaintiff on an indefinite administrative suspension without any explanation, but with pay. Meanwhile, the defendant designated a replacement for the plaintiff. Two months after being suspended, the plaintiff commenced an action for constructive dismissal. The defendant contended that by commencing the action the plaintiff had voluntarily resigned, and stopped paying his salary and benefits.
The majority analyzed the facts in Potter using the first branch of the test for constructive dismissal and held that the defendant had in fact constructively dismissed the plaintiff.
Under the first step, the majority found the defendant did not have express or implied authority to suspend the plaintiff. The reasons for this finding included the fact that the suspension was of indefinite duration, the defendant had failed to act in good faith, and that it had concealed the intention to have the plaintiff’s employment terminated. The majority pointed out that as the analysis under this step was conducted from an objective point of view, it was appropriate to consider the letter sent on behalf of the defendant to the Minister of Justice requesting the plaintiff’s dismissal.
The majority further accepted, under the second step, that a reasonable person in the position of the plaintiff would view the breach as substantial, despite the fact the defendant continued to pay the plaintiff. The defendant had a duty to provide the plaintiff with work, and moreover the suspension was neither reasonable nor justified, since inter alia, no reasons were provided to the plaintiff. However, the majority emphasized that at this point in the test, it was not appropriate to consider the letter requesting the plaintiff’s dismissal, because it was completely outside the realm of the plaintiff’s knowledge at the time.
There a number of important takeaways in this decision:
- Acting within the confines of the employment contract: Where an action is not expressly authorized by the employment contract, a careful analysis should be conducted as to whether the action is impliedly authorized or consented to by the employee – if not, the employer runs the risk of having constructively dismissed the employee.
- Legitimate business reasons: Employers do not have the implied authority to place an employee on non-disciplinary administrative suspension without legitimate business reasons. If the employer desires to have this ability, it should be provided in the contract.
- Continuing to pay is insufficient: There is a duty for employers to continue to provide work. When this duty is interfered with, continuing to pay the employee may be insufficient to show that the employee was not constructively dismissed.
 Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (“Potter”) at para. 68
 Ibid at paras. 69 -70
 Farber v. Royal Trust Co.,  1 SCR 846 (“Farber”) at para. 34
 Potter, supra note 1 at para. 32
 Ibid at para. 34 to 35
 Ibid at para. 26
 Ibid at para. 33
 Ibid at para. 33
 Ibid at para. 42
 Ibid at para. 41
 Ibid at para. 98
 Ibid at para. 45
 Ibid at para. 46
 Ibid at para. 81, 99
 Ibid at para. 63