SCC: Administrative Suspension With Pay Was Constructive Dismissal

The Supreme Court of Canada has issued a timely reminder to employers of the potentially costly consequences of suspending an employee whose contract of employment does not explicitly authorize the employer to do so. All seven judges who heard the case of Potter v. New Brunswick Legal Aid Services Commission (“Potter”) found that Mr. Potter had been constructively dismissed when the Commission suspended him indefinitely with pay from his position as Executive Director without providing him with a reason for doing so. As a result, the Court awarded Mr. Potter in excess of $300,000 damages for wrongful dismissal.

In a useful restatement of the general principles applying to constructive dismissal, the Court confirmed that a constructive dismissal occurs when an employer evinces an intention no longer to be bound by the contract of employment. This can happen either by the employer breaching a fundamental term of the contract or else by engaging in a course of conduct in respect of the employee that renders continued employment intolerable. Based on this analysis, the Court stated the central issue in Potter bluntly: “[i]f the Commission had the authority under the contract to suspend Mr. Potter for the administrative reasons it gave, then the contract was not breached and Mr. Potter’s constructive dismissal claim must fail”.

Unfortunately for the Commission, the Court concluded that it possessed no such authority. The Court rejected the Commission’s argument that the common law imposes no obligation on an employer to supply work to an employee and thus, that the suspension was not a breach of Mr. Potter’s contract of employment. To the extent that the general proposition was ever valid, the Court stated, “it has been overtaken by modern developments in employment law”.

Instead, Potter is current authority that an administrative suspension can only be valid if the employer can show that it was both reasonable and justified. This is determined having regard to factors such as whether there were legitimate business reasons for the suspension, whether the employer acted in good faith in imposing the suspension, the duration of the suspension, and whether the suspension was with or without pay. In setting out this test, the Court was careful to limit its application to administrative suspensions (that is, those not imposed in respect of alleged misconduct) and expressly did not consider the law in relation to disciplinary suspensions.

The suspension in this case was not reasonable or justified as:

  • the Commission failed to communicate to Mr. Potter any reason for the suspension;
  • the suspension was for an indefinite period; and
  • the Commission had delegated Mr. Potter’s powers and functions to another employee.

As such, the indefinite suspension was a breach of Mr. Potter’s contract of employment and, unsurprisingly, one that was found to be of such a fundamental nature so as to constitute a constructive dismissal.

In light of Potter, employers will need to consider their approach to administrative suspensions and, in particular, be mindful that simply continuing to pay a suspended employee does not insulate them from a possible constructive dismissal claim. Nonetheless, it remains the case that claiming constructive dismissal is generally a risky proposition for the employee too. In particular, if a court concludes that there were insufficient grounds for constructive dismissal, it is the employee who will be found to have repudiated the contract of employment and who will be liable for damages for that breach.

Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10

Questions relating to the content of the article may be directed to Geoffrey Litherland.