Northern Exposure

Did he quit, or was he fired?

by Emilie Paquin-Holmested

Generally when employees decide to leave their jobs, they are considered to have quit. But in Canada, if they leave their jobs because the employer substantially changed essential terms of their employment, they are considered to have been constructively dismissed.

The line separating these two notions is often unclear. It’s especially so when terms of employment are changed after a corporate merger or integration. In a recent decision (St-Hilaire c. Nexxlink inc.), the Court of Appeal of Quebec reviewed the principles of constructive dismissal in this very context.

In this case, Louis St-Hilaire, a vice president at Nexxlink, left his job following the acquisition of the company by Bell. Following this transaction, certain aspects of St-Hilaire’s employment were changed, such as his title, some of his responsibilities, and certain aspects of his remuneration. On the day of his departure, he told his boss that he wasn’t resigning but rather considered that he had been constructively dismissed. He claimed more than $500,000 in damages.

Superior Court decision

The trial judge found that St-Hilaire had quit. Applying the rule established by the Supreme Court of Canada in Farber v. Royal Trust Co., the court explained that in order for there to be constructive dismissal, it must find that the unilateral changes imposed by the employer substantially modified the essential terms of St-Hilaire’s employment contract. The court must look at it from the perspective of a reasonable person in the same situation as St-Hilaire. There must be an actual, substantial modification, not just an apprehension of such a modification.

The court found that although some of St-Hilaire’s employment conditions had been modified following Bell’s acquisition of Nexxlink, the changes didn’t justify his departure. They didn’t affect the essential conditions of his employment. St-Hilaire’s claim was denied.

Court of Appeal decision

The Court of Appeal upheld the trial judge’s decision. It reiterated the four criteria required for there to be constructive dismissal:

  1. a unilateral decision by the employer;
  2. a substantial modification of the essential terms of the employment contract;
  3. the employee’s refusal of the said modification; and
  4. the departure of the employee.

The appeal court noted that an employer can modify an employee’s situation if the employment contract allows for it or if the employee agrees to it. The court went on to say that an employment contract isn’t stagnant and must allow for a certain flexibility to adjust to new situations.

An employer can make changes under its managerial authority. However, this is where the line gets blurry. In order to determine whether an employer has illegally modified an employee’s terms of employment or has made changes under its managerial authority, the court must consider all of the circumstances of a case.

The court explained that in the case of an integration of companies, it’s not surprising that an employee’s responsibilities change. An employee can’t expect everything to remain the same in such a context. Furthermore, a period of uncertainty and adjustment is to be reasonably expected.

The appeal court also discussed an issue that hadn’t been dealt with by the Superior Court. When Bell acquired Nexxlink, St-Hilaire’s options to purchase Nexxlink’s shares were cancelled without compensation. This represented an important reduction in his remuneration. And when he decided to leave Nexxlink, he couldn’t have foreseen that his options would be replaced by a bonus program.

However, the court found that, because St-Hilaire raised this issue in his court motion, and not in his previous correspondence regarding his alleged constructive dismissal, and because he left the company a month and a half after having been informed of the cancellation of his options, he didn’t consider this element to be an essential term of his contract. He didn’t leave for this reason.

Although St-Hilaire’s employment conditions had been modified following Bell’s acquisition of Nexxlink, the court found that the changes that occurred didn’t affect the essential elements of his employment contract. Therefore, St-Hilaire hadn’t been constructively dismissed. He resigned.

Takeaway for employers

This case is an excellent review of the elements of constructive dismissal. It reminds us that employers do have, in certain circumstances, the managerial authority to modify conditions of employment. However, modifications must always be analyzed in their particular context in order to ensure that they don’t trigger a constructive dismissal.

In the event that you intend to significantly modify employees’ conditions of employment, it’s prudent to obtain legal advice as to whether such modifications substantially modify the essential terms of their employment. If not, this should be pointed out when you inform them of the modifications.

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