This post was contributed by Kris Israel, Associate, Norton Rose Fulbright Canada LLP (Calgary)

When severing the employment relationship without just cause, an employer is faced with a choice.  Should the employee be terminated effective immediately with pay in lieu of notice or, alternatively, would it be beneficial to instead provide working notice?  The latter approach is more desirable when the employee’s services are required during the notice period, perhaps to assist in transitioning duties to someone else.  Moreover, the working notice approach is more workable when the employee’s pending dismissal will not detract from workplace morale and absent concerns regarding his or her ongoing access to the company’s information.

In some circumstances, employers opt for a hybrid approach.  One such strategy entails providing the employee working notice but with the caveat that the employee’s services will not be required during the notice period.  Essentially, this is a way of saying, “you’re still an employee for the time being, but please stay home.”  It is not uncommon to include an additional direction like, “also, if you could avoid contacting any of your colleagues or any of our clients from this point on, that would be swell.”

A recent decision of the Alberta Court of Queen’s Bench held that one example of this approach amounted to a constructive dismissal.  Thompson v. Cardel Homes Limited Partnership, 2013 ABQB 353 involved a Regional President working under a fixed term contract.  The plaintiff was given notice, one month prior to the expiry of his fixed term, that his contract would not be renewed.  In addition, he was told that the defendant would “not require [him] to attend work for the remainder of the term of the Agreement.”

Thompson was relieved of all duties effective the end of that day.  He was to immediately return all company effects in his possession, including his building keys and computer password and clean out his office.  Cardel immediately advised contacts outside the company that the plaintiff was no longer an employee.  Thompson earned all of his regular base remuneration through to the end of the contract term.

The issue for determination was whether the defendant’s written communication was, as the company suggested, notice that the employment relationship would terminate at the end of the fixed term.  Madam Justice K.D. Nixon found instead that the move constituted a constructive dismissal effective at the time the notice was given.  This finding entitled the plaintiff to collect on a twelve month severance provision for termination without cause occurring during the fixed term.

Essentially, the court agreed with the plaintiff’s contention that the company committed a fundamental breach of an implied term of his employment contract by unilaterally making a substantial change to his duties and status.  It arrived at this conclusion by applying the test for constructive dismissal formulated by the Supreme Court of Canada in Farber v. Royal Trust Co., [1997] 1 S.C.R. 846 at para. 26:

“For this purpose, the judge must ask whether, at the time the offer was made, 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.”

The court’s survey of similar cases suggested that stripping an employee of his or her duties constitutes constructive dismissal when it adversely affects the individual’s remuneration or reputation or when it amounts to a total usurpation of duties and powers of an executive position.

An employer would be wise to turn its mind to these issues before embarking on a path somewhere between working notice and pay in lieu thereof.

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