First published on Thursday, June 4, 2020
Last updated on Wednesday, December 10, 2025
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Constructive dismissal is a hot topic in employment news and case law, many Canadian businesses don’t realize that they’ve made a mistake until a claim is brought forward, introducing risk of damages payouts, legal fees and loss of reputation.
Employers should review their policies before they have an issue, and with the help of expert HR advice, can reduce risk for the future.
Learn all about constructive dismissal, from how it works to how it can be avoided.
What constructive dismissal is
Constructive dismissal is a term used to describe when an employer hasn’t directly fired an employee, but has created an environment in which the employee is pushed out of the business through changes to the circumstances of their employment.
This can be done in the following ways:
An employer fails to comply with the contract of employment in a significant way
The terms of employment are unilaterally changed for an employee
The employer expresses an intention to do either of the above, forcing an employee to quit
Under common law, constructive dismissal claims almost always require the employee to resign within a reasonable timeframe after the significant change. If they stay too long, they are considered to have accepted the new conditions, however timelines are subjective.
An employer has to clearly express their intention to make whatever the change is, or has to have actioned it. If it was just a hypothetical conversation that was not actioned or officiated in any way, it may qualify as reason for constructive dismissal.
Common causes of constructive dismissal
Every case of constructive dismissal is unique and will have varying circumstances, but here are the most common contributors to a valid constructive dismissal claim.
Reduced hours, salary, benefits or status
Here are some common scenarios that could lead to a valid constructive dismissal claim in regard to hours, salary, benefits or status.
An employer substantially reduces the hours for an employee
An employee’s salary is reduced for the same amount of work
An employer removes access to previously granted benefits for an employee
Minor reductions, temporary adjustments and changes permitted by contract are generally not a case of constructive dismissal, but if handled improperly, such as a lack of clear communication, will introduce risk.
Minor changes may include adjustments to the reporting structure without affecting compensation or job scope, small modifications to desk locations or office layouts, and slight changes to minor tasks that do not impact the employee’s overall role or compensation.
Demotions or change in duties
If an employer removes a main area of responsibility for an employee, decreases their duties or demotes them without reasonable consideration, it could introduce the risk of a valid claim of constructive dismissal.
This form of constructive dismissal typically involves a loss of prestige and status—but would typically also involve a tangible reduction in duties, responsibility and/or pay.
Threats or suspensions
If an employee is to resign in response to threats of dismissal or demotion, it could be the foundation of a valid claim. Context matters, and employers should be very careful as to whether they have these conversations with employees.
Even simple encouragement to resign could amount to a constructive dismissal. For example, if a 65+ year old employee was to be approached about the possibility of them retiring, without them having mentioned it themselves.
As well as this, if an employee resigns because of an unfair suspension that creates an intolerable situation for them, it can also be justification for a valid claim. The term ‘intolerable’ is a core focus for courts when evaluating these cases, and suspensions introduce risk when they are unjustified, prolonged or humiliating.
How to reduce the risk of constructive dismissal
When it comes to the risk of constructive dismissal, the foundations for a claim are usually a pattern, or a process that takes place without due consideration. Canadian employers should focus on having clear, consistent processes and policies that minimize risk while still achieving goals.
Here are some actionable steps that you should consider layering into your business policies and procedures.
Treat all major job and role changes as contractual
When making a change to an employee’s conditions of employment, such as reductions in pay, hours, benefits status or demotions, they must be proposed as a change to their employment contract.
These changes should only be made if factually necessary when initiated by the employer, and must have appropriate justification. Justification could include significant financial pressures upon the business, or an unexpected organizational restructuring.
Get clear, written employee consent
When making these contractual changes, ensure that the employee agrees to the change voluntarily, and that their agreement is formalized in writing. Include new job titles, duties, compensations and the date this new contract comes into effect.
Provide due consideration and assistance
If there are salary or other reductions, offer additional value to the employee. This can be in the form of transition pay, increased vacation allowances, training and certifications or other benefits.
When an employer is able to prove proper consideration and support to their employees, they significantly reduce the risk associated with constructive dismissal claims, and have a better defense in legal proceedings.
It’s highly important to note that ‘continued employment’ is not a sufficient form of consideration.
Transparent and timely communication
When an employer wishes to pursue changes that would apply to an employee, they should explain the reasoning behind the change, outline the options available to the employee and avoid any threatening or coercive language.
An example of coercion could be an employer saying that non-acceptance of new terms would result in the employee being terminated for insubordination—this would be unfair to the employee and introduce risk.
Allow reasonable decision timeframes
When these changes and options are presented to the employee, give employees reasonable amounts of time to review the changes, seek professional advice and respond.
Giving an employee 5 to 10 business days to respond, with a scheduled follow-up outlined to review the outcomes would fall within best practice. Undertaking these steps can prove that the employer is making every reasonable effort to be fair during the process.
Thorough documentation of changes
Employers should securely store records of proposals, discussions, acknowledgements and decisions when undertaking the change process.
Having formalized policies and procedures stored will also prove that employers intend to be fair, and if the process is followed, it will help employers prove fair, consistent treatment.
How constructive dismissal varies across provinces
It’s important to remember that different provinces and jurisdictions have varying rules with employment practices and legislation. Here are some general guidelines to keep in mind for employers in Ontario, British Columbia and Alberta.
Ontario
Temporary layoffs and significant changes to an employee’s role, pay, hours, or other key terms without the employee’s agreement can be considered constructive dismissal.
The Ontario Employment Standards Act (ESA) sets minimum notice and severance requirements, but constructive dismissal claims can exceed these minimums under common law.
When making changes, ensure to document proposals and agreements in writing, make sure the employee agrees voluntarily, and avoid changes solely decided by the employer. If you’re considering a demotion or pay cut, provide extra support or compensation and explain the change clearly.
Alberta
Temporary layoffs are allowed in some cases, but you must follow the Employment Standards Code (ESC) rules closely.
It’s important to document consent quickly and keep the process neutral and clear. Any salary reductions, demotions, or duty changes should be voluntary and include consideration.
British Columbia
Changes after leaves of absence, like medical leave, are heavily scrutinized in BC.
Demotions, pay cuts, or reductions in duties should ideally be voluntary for the least amount of risk and clearly documented.
If a role is eliminated or materially reduced, it can create constructive dismissal risk even if the employee stays at the business.
Use neutral language, explain the change fully, and give employees reasonable time to review and respond.
Get more support with your human resource management
BrightHR is here to help Canadian SMEs get their HR right.
We offer a 24/7, expert HR advice line for all human resource questions, compliant templates for your policies, contracts and additional documents and much more.
Document and securely store your agreements and policies, ensuring nothing gets missed or lost, and reduce confusion with your employees.
Book a demo today with our expert team to find out how BrightHR can help your business.
