Taking Action: Legal Steps to Handle Constructive Dismissal in Toronto

In employment law, constructive dismissal is one of the more complex and misunderstood concepts. Constructive dismissal occurs when an employer fundamentally changes the terms of employment or creates intolerable working conditions, effectively avoiding formally terminating an employee by forcing them to resign. These types of actions can legally amount to wrongful dismissal in Ontario under the common law and Employment Standards Act, 2000 (ESA). This means that an employee could have grounds for a claim for severance and other entitlements against their former employer.

This blog post will explore the legal steps employees should take if they experience constructive dismissal, as well as how employers can mitigate the risks associated with these kinds of claims.

What is Constructive Dismissal in Ontario?

Before getting to the legal steps involved in dealing with constructive dismissal, it is important to understand what types of actions qualify as constructive dismissal. In short, if an employer’s actions would lead a reasonable person to conclude that (1) there has been a substantial unilateral change to a fundamental term of the employment relationship, and (2) their continued employment is no longer tenable under the new terms, those actions likely amount to constructive dismissal. For example:

  • Significant pay reduction: a substantial cut to compensation, salary, bonuses, or benefits
  • Demotion or significant role change: altering job duties, title, or reporting structure in a way that diminishes the employee’s position or status
  • Relocation: requiring an employee to move to a distant or unreasonable work location
  • Toxic work environment: creating or failing to address a hostile, unsafe, or harassing workplace that forces the employee to resign
  • Unilateral schedule changes: drastically changing work hours or shift patterns
  • Temporary layoffs: in non-unionized workplaces, even a temporary layoff could be deemed constructive dismissal unless the employment contract explicitly allows for layoffs

 

Legal Steps for Employees Experiencing Constructive Dismissal

Step 1: Clearly Define the Change to the Employment Relationship

Employees should evaluate whether their employer’s action constitute a fundamental change to their job. Minor adjustments, like slight changes in duties or location, likely do not meet the threshold for constructive dismissal. See the list above for changes that do meet this threshold.

Step 2: Document Everything

Employees should maintain meticulous records, including:

  • Emails, letters, or memos related to the change
  • Performance reviews
  • Employment contract
  • Notes of conversations with management
  • Any internal complaints
  • Documenting the timeline and impact of changes

Step 3: Seek Legal Advice

Employees should consult an employment lawyer before resigning or taking any further action. Constructive dismissal claims depend heavily on the facts, and premature resignation or delayed action can weaken the case. A lawyer can assess whether the changes meet the legal threshold for constructive dismissal and provide individually tailored advice to the employee’s unique situation.

Step 4: Provide Formal Notice (Optional)

In some cases, it may be appropriate for the employee to notify the employer in writing that they view the changes as fundamental changes to their employment contract. This letter (called a demand letter) may request reinstatement to previous conditions or provide an opportunity for the employer to remedy the situation.

Step 5: Resign (Carefully)

Resignation should be a last resort and only after consulting with a lawyer. Courts will assess whether resignation was reasonable in the circumstances.  Immediate resignation without notice could undermine the claim unless there is a clear breach by the employer.

Step 6: File a Claim

If the situation is irreparable, the employee may commence a wrongful dismissal claim through their lawyer, seeking:

  • Severance pay
  • Notice pay (under the ESA and common law)
  • Compensation for benefits loss
  • Potential bad faith or punitive damages in particularly egregious cases

Legal Process for Employers Responding to Constructive Dismissal Claims

Step 1: Proactive Prevention

Employers can reduce their risk exposure to constructive dismissal claims by:

  • Maintaining clear employment contracts: clearly outline the right to make changes, such as pay adjustments, duty modifications, or temporary layoffs.
  • Communicating changes: when changes are necessary, explain the business reasons and consult with employees.
  • Obtaining employee consent: where possible, seek written consent before implementing major changes.
  • Monitoring workplace culture: promptly investigate and address complaints of harassment, bullying, or unsafe conditions.

Step 2: Internal Review

If an employee raises concerns about constructive dismissal, employers should:

  • Investigate promptly: review the employee’s complaints and the history of changes to their employment.
  • Evaluate the risk: assess whether the changes truly amount to constructive dismissal under the legal standard.
  • Consult legal counsel: employment lawyers can provide invaluable risk assessments and strategies for resolution.

Step 3: Attempt Resolution

Where feasible, employers should try to resolve the dispute amicably. Options include:

  • Restoring the employee’s original terms
  • Offering compensation for changes
  • Negotiating a mutually agreeable severance package

Step 4: Respond to Legal Claims

If the employee files a formal claim, the employer will need to respond appropriately through:

  • A Statement of Defence (if a court claim is filed)
  • Participation in settlement discussions or mediation
  • Providing relevant documentation and evidence
  • Employers should rely on legal counsel to craft their defence and evaluate whether to settle or proceed to trial. Defences often hinge on proving the changes were minor, reasonable in the circumstances, or permitted by contract.

Step 5: Explore Settlement Options

Many constructive dismissal claims resolve before trial through negotiated settlements. Settlements can save time and costs while allowing both parties to move forward. Settlement terms often include:

  • Severance pay
  • Release of future claims
  • Confidentiality clauses

At Levitt LLP, we are dedicated to ensuring that your rights are protected. Whether it’s about constructive dismissal or any other employment-related issue, our experienced team is here to advocate for you. Contact us for a consultation and take the first step toward protecting your rights and entitlements.