Forced Out? Understanding Constructive Dismissal in Ontario
Have you experienced sudden workplace changes that clearly work against your interests, such as a major pay cut, a demotion in substance (even if not in title), or being stripped of core responsibilities without your consent?
If so, you may be dealing with constructive dismissal.
What is constructive dismissal?
Constructive dismissal happens when an employer does not explicitly terminate an employee, but instead acts in a way that signals they no longer intend to be bound by the employment contract. In law, the employee can treat that conduct as a termination and pursue wrongful dismissal damages.
The employee generally bears the burden of proving constructive dismissal.
The Supreme Court’s “two-branch” test
The Supreme Court of Canada in Potter v. New Brunswick Legal Aid Services Commission confirmed that constructive dismissal can be proven in two ways.
Branch 1: A single unilateral breach that substantially changes essential terms
This is the “classic” constructive dismissal scenario. The analysis has two steps:
Was there a breach of the employment contract (a unilateral change)?
A key question is whether the employer’s action was actually authorized by an express or implied term of the contract. If it was authorized, there may be no breach.Would a reasonable person see the breach as substantially changing an essential term?
Even if the employer breached the contract, the question becomes whether a reasonable employee in the circumstances would view it as a substantial change.
Branch 2: A course of conduct that, viewed as a whole, shows the employer is no longer bound
The second branch is different. The employee does not have to point to one specific “big” change that alone amounts to a substantial breach. Instead, the court looks at whether the employer’s overall course of conduct, in context, would lead a reasonable person to conclude the employer no longer intends to be bound by the contract.
Traditional examples (and why modern cases are broader)
Common constructive dismissal examples still include:
Significant pay or benefit reductions
Demotions or loss of authority/status
Unilateral relocation or major scheduling changes
Removal of core duties
But modern employment law also recognizes that employment is not “just a paycheque.” Work can be tied to identity, dignity, and well-being, and an employer’s discretion to withhold work is not unlimited.
“You’re still getting paid” is not always a defense
A major takeaway from Potter is that even an administrative suspension with pay can amount to constructive dismissal in the right circumstances, especially if it is indefinite, unsupported, or handled in bad faith.
In paid-suspension cases, the Supreme Court emphasized substance over labels. The overriding question is whether the suspension was reasonable and justified, including whether the employer acted in good faith and had legitimate business reasons.
Courts may look at practical factors such as:
duration of the suspension
whether someone was appointed to replace the employee
whether the employee was asked to turn in keys/devices
whether pay and benefits continued
whether there is evidence the employer intended to terminate
whether the employer acted in good faith for bona fide business reasons
Just as importantly, the Court noted that in most circumstances, an administrative suspension cannot be “justified” with zero explanation. Good faith requires being candid and forthright in contractual dealings.
The danger of waiting (and the role of “working under protest”)
Timing matters.
If you stay too long without objecting, the employer may later argue you accepted the new reality. That said, employees are not always required to quit immediately. In some cases, an employee may continue working under protest while assessing options, and the law also recognizes mitigation principles where remaining employed is not objectively unreasonable.
Bottom line
Constructive dismissal is highly fact-specific. The key question is whether the employer’s actions, viewed objectively, show a substantial unilateral change to essential terms, or a broader course of conduct indicating the employer no longer intends to be bound by the employment contract.
If you are dealing with sudden negative changes at work, it is worth getting legal advice before making major decisions.
Need help?
Contact Axia Law to review your employment contract and workplace changes, including whether the employer’s actions comply with the ESA and whether your situation may amount to constructive dismissal.
This post is for general information only and is not legal advice.