Filing Suit Amid Suspension Isn’t Wilful Resignation

by & Christina Catenacci

When the New Brunswick Legal Aid Services Commission decided unilaterally to place its executive director David Potter on indefinite paid suspension, the employee challenged the decision in court. The commission took the position that Potter’s legal challenge meant he had resigned, and cut off his pay and benefits. The case went to the Supreme Court of Canada and in Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court concluded that Potter was constructively dismissed and did not voluntary resign his position. The central issue was whether and in what circumstances a suspension with pay of a non-union employee constitutes a constructive dismissal.

Facts of the case

Potter was appointed executive director of the Legal Aid Services Commission in New Brunswick with a seven-year term. However, in the first half of the term, the work relationship deteriorated. As a result, in the spring of 2009, the commission’s board of directors and Potter began negotiating a buyout of Potter’s employment contract.

While the matter was being resolved, in October 2009, Potter took a one-month sick leave on the advice of his doctor. This medical leave was extended until January 4, 2010, and then to January 18.

On January 5, the commission unilaterally decided, without informing Potter, that if a buyout agreement was not reached by January 11, it would request that the lieutenant-governor in council revoke Potter’s appointment pursuant to s. 39(4) of the Legal Aid Act, RSNB 1973 c I-13. The commission wrote a letter to the Minister of Justice recommending that Potter be terminated for cause.

On January 11, 2010, the commission’s legal counsel wrote Potter advising him not to return to work until further direction.

Subsequently, and still during Potter’s sick leave, the commission suspended Potter indefinitely with pay and delegated his powers and duties to another person. Despite his request, Potter was not provided with reasons for his suspension. In response, on March 9, 2010, Potter began a lawsuit, claiming that he was constructively dismissed.

The commission believed that since Potter began a lawsuit, he had voluntarily resigned from his position. The employer stopped his salary and benefits.

The matter went to court, and both the New Brunswick Court of Queen’s Bench and the Court of Appeal agreed with the commission, confirming the employer’s right to place Potter on an indefinite administrative suspension with pay. According to the courts, Potter repudiated his employment contract when he brought an action for constructive dismissal against the employer during his paid suspension.

Potter appealed all the way to the Supreme Court of Canada.

The Supreme Court had to decide whether and in what circumstances a non-unionized employee who is suspended with pay can claim to have been constructively dismissed.

Supreme Court of Canada decision

The Supreme Court concluded that the commission lacked the authority, whether express or implied, to suspend Potter indefinitely with pay for the reasons it gave. To that end, Potter was constructively dismissed and he was entitled to damages for wrongful dismissal.

Test to determine constructive dismissal

The Supreme Court stated that there are two branches (two types) of constructive dismissal.

The first branch of constructive dismissal requires an analysis of an employee’s contract, and typically arises when the employer unilaterally changes the employee’s compensation, duties or place of work. When this occurs, the employee must prove on a balance of probabilities that 1) the employer breached an express or implied term of the employee’s contract, and 2) the breach substantially altered an essential term of the contract.

To determine whether a breach is sufficiently serious to constitute constructive dismissal, the court has to ask whether, at the time the breach occurred, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed (a court cannot consider evidence that was neither known to the employee nor reasonably foreseeable).

The second branch does not explicitly involve a breach of the contract; rather, it arises when the employer’s conduct makes continued employment intolerable for the employee. The courts must take a retrospective approach and consider the cumulative effect of past employer actions on the employee. The test to be applied is whether, in light of all the circumstances, a reasonable person would conclude that the employer no longer intended to be bound by the terms of the contract.

This is how it works: the employee has to establish constructive dismissal, but where there is an administrative suspension, the burden shifts to the employer to show that the suspension was reasonable or justified. If the employer is not able to do so, a breach is established, and the burden shifts back to the employee to prove that the breach was a substantial alteration to an essential contract term. There need not be a formal termination for a court to find an employee was constructive dismissed, just a unilateral act by the employer to substantially change the contract of employment.

It was clear that the express terms of Potter’s contract were found in the Legal Aid Act, and in the terms and conditions of employment established by the commission pursuant to section 39(2) of the Act. However, none of those terms nor conditions, or even the Act itself, referred to suspension for administrative reasons. This meant that there was no express grant of power to put an employee on paid or unpaid suspension. Similarly, there was no implied power to suspend an employee. Given the nature of the executive director’s position and the detail in which his statutory obligations were defined in the contract, the commission had an obligation to provide Potter with work.

Since the commission could not establish that the suspension was reasonable or justified, it could not argue that it was acting pursuant to an implied term of the contract. This meant that the suspension constituted a unilateral act. Not only was Potter not given any reason for the suspension, but also, there was a lack of good faith because the commission was not honest, reasonable, candid and forthright. The Court stated, “Failing to give an employee any reason whatsoever for his suspension is not being forthright”. Without knowing the employer’s reasons for indefinitely suspending him, Potter reasonably believed that the suspension amounted to a substantial change to his contract.

As a result, since both parts of the test could be met, Potter was constructively dismissed and therefore entitled to damages for wrongful dismissal.

The trial judge’s provisional assessment of those damages should be adopted, with one exception regarding Potter’s pension benefits. The pension benefits were not to be deducted from the damages awarded to him because those benefits were not intended to compensate Potter in the event of his being wrongfully dismissed.

The Supreme Court allowed Potter’s appeal, and reversed the decision of the New Brunswick Court of Appeal. Potter was entitled to damages for wrongful dismissal as calculated by the trial judge with the one exception.

What can we take from this case?

This case is very important because the Supreme Court of Canada, the highest court of the land, has clarified again the test for constructive dismissal of an employee. In doing so, the Court specifically confirmed that, just because an employee launches a lawsuit after being suspended, does not mean that the employee has repudiated the contract or resigned from employment.

In addition, this case confirms that to suspend an employee with or without pay, an employer must have the authority to do so in legislation or in the employment contract. In the absence of such term or right, the suspension must be justified and reasonable, even if the employee continues to be paid. That means the employer must act in good faith and clearly communicate its legitimate business reasons to the employee.

As is evident from this case, where an employee’s suspension is found to be unreasonable, unjustified and unauthorized, an employer will have a tough time arguing that it did not intend to breach the employment contract.

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