The New Brunswick Legal Aid Services Commission breached the term of its employment contract and constructively dismissed an executive director when it suspended him indefinitely without giving reasons, the Supreme Court of Canada has found.
“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,” said Justice Richard Wagner, who wrote on behalf of the 5-2 majority.
“Legitimate business reasons must always be shown, although the nature or the importance of those reasons will vary with the circumstances of the suspension. In the instant case, this basic requirement was not met,” Wagner said.
“Failing to give an employee any reason whatsoever for his suspension is, in my opinion, not being forthright.”
Labour and employment lawyer Danny Kastner says the decision brings clarity to the existing constructive dismissal principles.
“What it shows is the Supreme Court’s willingness to apply the contractual interpretation principles in Bahsin v. Hrynew, which says all contracts have to be performed with good faith, honesty and openly,” Kastner also says.
“It’s the first chance the Supreme Court has had to apply that case to employment contracts and it shows they have no hesitation in doing so.”
The court found Potter was entitled to damages for wrongful dismissal as assessed by the trial judge, with the exception that the pension benefits he has already received are not to be deducted from those damages.
Although the minority, Chief Justice Beverley McLachlin and Justice Thomas Cromwell, disagreed with the majority’s method of finding, they arrived at the same conclusion that the commission’s actions amounted to constructive dismissal.
The trial judge, and later the New Brunswick Court of Appeal, erred by failing to apply the first test for constructive dismissal, which is whether the employer’s action constitutes a breach of the employment contract, Wagner wrote.
According to the court, Potter also satisfied the second part of the legal test for constructive dismissal, which is whether a reasonable person in his position would have felt the essential terms of the employment contract were being substantially changed.
“It was reasonable for Mr. Potter to perceive the unauthorized unilateral suspension as a substantial change to the contract. As far as he knew, he was being indefinitely suspended and had been given no reason for the suspension. The letter to Mr. Potter stated that the suspension was to continue ‘until further direction from the Commission,’” said Wagner.
“When Mr. Potter had his lawyer write to request clarification of the board’s instructions, the board persisted in its silence regarding the reason and simply stated that he ‘is not to return to work until further notice,’” he added.
Potter was named the executive director of the legal aid commission in 2006. Within a few years, his relationship with the board of directors there had deteriorated and talks were underway about a buyout of his contract. After his suspension, Potter brought an action against the commission for constructive dismissal, at which point the board decided the action amounted to a resignation and terminated his employment.
Unbeknownst to Potter, the commission had sent a letter to the justice minister recommending his termination for cause.
Having found the commission constructively dismissed Potter — and it was the employer that ended the contract — the SCC declined to fully address whether Potter’s legal action against his employer amounts to a resignation.
The court did discuss, however, another interesting principle in employment law. In this case, the commission had argued it didn’t have a duty to provide Potter with work and that an administrative suspension with pay rarely constitutes constructive dismissal.
The court disagreed.
“It is clear that the benefits derived from performing work are not limited to monetary and reputational benefits,” Wagner said
“Although I accept that employees who receive earnings from commissions or who derive a reputational benefit from the performance of their work are placed at a particular disadvantage should their employers refuse to provide them with work and that this justifies finding that an obligation to provide work is implied in the contract, I would caution against assuming that the converse is also true, namely that workers who are not included in those narrow categories derive no benefit whatsoever from the performance of their work and that their employers therefore have an unfettered discretion to suspend them with pay.”
“Is it really the case that a president and CEO has, by virtue of his or her reputation, an implied right to work, whereas an administrative assistant, because his or her reputation is not valued, lacks any such right?” Wagner asked.
The answer was no. When it comes to withholding work without justification, he found the rules will apply equally to a CEO and administrative assistant.
“Whether you’re a CEO or an administrative assistant, not being able to work will usually have a profound negative impact on you even if you’re being paid,” says Kastner. “I think it’s significant that the court underlined this principle in this case.”