Constructive dismissal happens when an employer changes the terms of employment so significantly that the employee is effectively forced out — even though they technically resigned. Ontario courts treat it as a termination without cause, which means the employer owes the same reasonable notice or pay-in-lieu they would owe if they had fired the employee. The most common triggers are salary cuts, demotions, relocations, and workplace harassment. Most constructive dismissal claims are preventable with clear contracts, employee consent, and proper process. This guide explains the legal test, the common triggers, the defences, and how to make workplace changes without creating liability.
What Is Constructive Dismissal?
Constructive dismissal is a legal doctrine that recognizes a resignation is not always voluntary. When an employer unilaterally changes the fundamental terms of employment without the employee’s consent — and the change is significant enough that a reasonable person would conclude the employer no longer intends to be bound by the original employment agreement — Ontario courts treat the employee’s departure as a termination without cause.
The employee did not get fired. But the law says they were fired.
This matters enormously for employers because a finding of constructive dismissal carries the same exposure as a termination without cause: the employer owes the employee reasonable notice or pay-in-lieu, calculated under both the Employment Standards Act (ESA) and common law. For senior employees with long tenure, that can easily reach 12–24 months of salary plus benefits and bonuses.
The concept comes from common law and has been developed extensively by Ontario courts. The Supreme Court of Canada addressed it directly in Potter v. New Brunswick Legal Aid Services Commission (2015), which remains the leading authority on the legal test.
The Legal Test Ontario Courts Apply
The Supreme Court of Canada’s two-part test for constructive dismissal asks:
- Did the employer’s conduct breach a fundamental term of the employment contract? — either a single significant breach, or a pattern of conduct showing the employer no longer intends to be bound by the contract.
- Would a reasonable person in the employee’s position feel entitled to resign? — the test is objective, not based on how the specific employee felt about the change.
The first branch covers unilateral changes to core employment terms (pay, title, duties, location, hours). The second branch covers patterns of behaviour — repeated mistreatment, ongoing harassment, or a series of smaller changes that cumulatively amount to a fundamental change in the employment relationship.
| Type | What It Means | Examples |
|---|---|---|
| Single unilateral act | One change that substantially alters a core employment term | 15–25% salary reduction; demotion to lower title and responsibilities; forced relocation to another city; removal of direct reports |
| Pattern of conduct | Series of changes or acts that cumulatively show repudiation of the contract | Increasing workload + pay freeze + removal of office + exclusion from meetings over 6 months; ongoing harassment tolerated by management |
The objectivity of the test is critical. Even if a manager genuinely believed a change was minor or business-justified, if a reasonable person in the employee’s position would conclude their employment had fundamentally changed, the legal test can still be satisfied.
Common Constructive Dismissal Triggers
| Change or Action | Risk Level | Key Factors |
|---|---|---|
| Salary reduction of 10–15%+ | High | Size of reduction; whether business-wide or targeted; whether consent was sought; temporary vs. permanent |
| Elimination of bonus or commission | High | Whether bonus was guaranteed vs. discretionary; whether it was a material part of total compensation |
| Demotion (title, authority, or responsibilities) | High | How significantly responsibilities diminished; whether compensation was maintained; whether change was communicated as permanent |
| Geographic relocation | High to Medium | Whether contract had a mobility clause; distance of relocation; cost burden on employee; amount of notice given |
| Change in reporting structure | Medium | Whether the employee now reports to a much more junior person; reputational damage; whether managerial authority was removed |
| Significant increase in workload with no pay increase | Medium | Usually must be combined with other changes; courts reluctant to find constructive dismissal from workload alone |
| Workplace harassment left unaddressed by employer | High if sustained | Duration; severity; whether employer took reasonable steps to investigate and address; OHSA obligations |
| Mandatory return to office after extended remote work | Medium to High | Whether remote was the original arrangement; whether employee has accommodation needs; amount of notice given |
| Placing employee on administrative leave (with pay) | Medium | Duration; whether communication was provided; whether connected to legitimate investigation |
What Does NOT Constitute Constructive Dismissal
Not every workplace change constitutes constructive dismissal. Courts have consistently found that employers retain the right to make reasonable management decisions, and employees are expected to accommodate minor adjustments to their work.
The following generally do not constitute constructive dismissal on their own:
- Minor duty adjustments that fall within the reasonable scope of the employee’s role
- Performance management — placing an employee on a Performance Improvement Plan (PIP), implementing closer supervision, or providing critical feedback — as long as it is conducted in good faith and without harassment
- Organizational restructuring that changes titles or reporting structures but leaves total compensation and level of responsibility materially unchanged
- Temporary layoffs conducted in compliance with the ESA, provided the employment contract expressly permits temporary layoff
- Changes to discretionary benefits that were expressly noted in the contract as subject to change
- Lateral transfers with comparable pay, status, and responsibility
Damages: What Employers Owe
If an employee successfully establishes constructive dismissal, they are entitled to the same damages they would receive if the employer had terminated them without cause on the day they resigned:
| Damages Category | What It Covers | Typical Range |
|---|---|---|
| ESA termination pay | 1 week per year of service, max 8 weeks | Minimum floor; rarely the only exposure |
| ESA severance pay (if eligible) | 1 week per year, max 26 weeks — only for 5+ years service + $2.5M payroll | Up to 26 weeks of regular pay |
| Common law reasonable notice | Notice or pay-in-lieu based on Bardal factors (age, service, character of position, availability of comparable employment) | 1–3 months per year of service; typically 2–24 months total |
| Bonus / commission in notice period | If employee would have earned bonus during notice period, it may be owed | Variable; depends on bonus structure and notice period length |
| Benefits continuation | ESA requires benefit continuation through ESA notice period; common law may extend further | Depends on benefit plan and notice period |
| Aggravated / Wallace damages | Additional damages for bad faith in the manner of dismissal | Additional $25,000–$100,000+ in egregious cases |
A valid, Waksdale-compliant termination clause that limits notice to the ESA minimum applies to constructive dismissal just as it does to direct termination — but only if the contract was properly drafted. See our guide on employment contracts in Ontario.
Employee Obligations: Accepting Changes and Mitigation
Acceptance Through Continued Employment
An employee who continues to work under the new conditions for a significant period without objecting may be found to have accepted the change — which eliminates the constructive dismissal claim. Ontario courts have found acceptance in cases ranging from a few weeks to several months of continued employment after the change was implemented.
Mitigation Obligation
An employee claiming constructive dismissal has the same duty to mitigate their damages as any other terminated employee — they must take reasonable steps to find comparable employment. Courts have reduced damages significantly where employees made little effort to find new work or turned down reasonable job offers.
Limitation Periods
Ontario employees have two years from the date of the constructive dismissal to commence a civil action. They have six months from the date of the event to file a complaint with the Ministry of Labour under the ESA. Both clocks start running when the change is implemented — not when the employee ultimately resigns.
How Employers Can Prevent Constructive Dismissal Claims
1. Get Consent for Material Changes
The single most effective way to avoid a constructive dismissal claim is to get the employee’s informed written consent before implementing a significant change. A signed amendment to the employment contract, or a letter acknowledging and accepting the change, is far more valuable than any other mitigation strategy.
2. Provide Reasonable Working Notice of Changes
Where immediate consent is not possible, providing advance notice of the change can sometimes reduce or eliminate the constructive dismissal exposure. The required notice is contextual: more notice for more significant changes. A permanent pay cut to take effect in 90 days with advance written notice is less risky than the same cut announced on a Monday effective the following Friday.
3. Use Clear Contractual Language
Employment contracts should include provisions that expressly permit the employer to make reasonable changes to duties, work location, and compensation in defined circumstances. A mobility clause, flexible duties clause, and a provision permitting reasonable compensation adjustments make changes far less likely to constitute constructive dismissal.
4. Address Harassment and Culture Issues Quickly
The constructive dismissal cases that attract the highest damages often involve employers who knew about workplace harassment, bullying, or a toxic environment and failed to act. Under the Occupational Health and Safety Act, employers have a legal obligation to investigate and address workplace harassment promptly.
Return-to-Office Policies and Constructive Dismissal Risk
Since 2022, a significant number of Ontario constructive dismissal claims have involved return-to-office mandates. The analysis is fact-specific, but here is how courts approach it.
| Situation | Risk Level | Mitigation Approach |
|---|---|---|
| Employee was hired office-based; temporarily remote during COVID; now returning | Low | Reasonable advance notice; acknowledge the transition period; accommodation requests handled properly |
| Employee hired specifically as remote worker; contract specifies remote | High | Negotiated amendment with consent; offer of additional compensation; accommodation process for those with Human Rights Code needs |
| Long-term remote worker (3+ years) with no remote clause in contract | Medium | Sufficient advance notice (6–12 months); reasonable dialogue; individual consultation; accommodation review |
| Employee requiring accommodation (disability, family status) | High without process | Engage duty to accommodate process before implementing RTO mandate; individualized assessment |
Contract Clauses That Reduce Constructive Dismissal Risk
| Clause | What It Does | Drafting Notes |
|---|---|---|
| Flexible duties clause | Permits employer to assign reasonable alternative duties within the employee’s skill set | Should not permit demotion or fundamental role changes; scope matters |
| Mobility clause | Permits employer to require employee to work at different locations | Must specify geographic scope; “any location in Canada” is likely unenforceable without more |
| Temporary layoff clause | Expressly permits the employer to temporarily lay off the employee in compliance with ESA | Critical for seasonal businesses, construction, and manufacturing; without it, layoff = constructive dismissal at common law |
| Variable compensation clause | States that bonuses are discretionary and subject to change based on business performance | Must be drafted carefully — if bonus is formula-based, it may be harder to characterize as discretionary |
| Remote work clause | Specifies whether remote work is permanent, hybrid, or temporary; reserves right to require office attendance | Critical post-2020; should address what triggers change and what notice is required |
8 Common Employer Mistakes That Lead to Constructive Dismissal Claims
| Mistake | Why It’s a Problem | Better Approach |
|---|---|---|
| Implementing a salary cut without consent | Courts have repeatedly found 10–15%+ cuts to be constructive dismissal, regardless of business justification | Negotiate consent; offer future compensation adjustment as trade; provide maximum advance notice |
| Demoting an employee without discussing the change | Unilateral demotion is one of the most common constructive dismissal triggers | Have a frank conversation; get written acknowledgment; offer reasonable transition period |
| Temporarily laying off without a contractual right to do so | Common law does not recognize a right to lay off without a contract clause, even with ESA compliance | Include a temporary layoff clause in all employment contracts |
| Tolerating harassment or a toxic manager | Employer inaction transforms a harassment problem into constructive dismissal liability | Investigate promptly; take corrective action; document OHSA compliance steps throughout |
| Forcing RTO with no advance notice or accommodation process | Employees who relied on remote arrangements have potentially strong constructive dismissal claims | Provide substantial advance notice; conduct 1:1 consultations; properly process any accommodation requests before the RTO effective date |
| Using constructive dismissal as an alternative to proper termination | Some employers make conditions so unpleasant that an employee leaves. Courts punish this with Wallace/aggravated damages | Terminate directly with proper notice or pay-in-lieu; do not engineer exits through hostile conditions |
| Changing job duties significantly without notice | Even if pay is maintained, a dramatic change in the nature of the work can be constructive dismissal | Use a flexible duties clause in the contract; consult the employee before significant changes |
| Having no up-to-date written employment contracts for senior staff | Without a written contract, the implied terms of employment become whatever the employee argues they were | Review and update employment contracts annually; ensure all senior staff have current signed agreements |
When to Get HR or Legal Support
Not every workplace change requires external HR help — but some situations carry enough risk that getting advice before acting is well worth the cost. Consider getting support when:
- You are considering a salary reduction for one or more employees
- You are restructuring roles and eliminating or substantially changing a senior employee’s position
- You want to implement a return-to-office policy and have employees who have been remote for 1+ years
- An employee has informed you they consider a recent change to be constructive dismissal
- You are experiencing a complaint about a manager’s behaviour that has not been resolved quickly
- A senior employee with 10+ years of service is involved in any of the above
The HRXconnect team provides HR consulting support for exactly these situations. See also our related guides on severance pay in Ontario, wrongful dismissal, and employment contracts.
Frequently Asked Questions
Can an employer reduce salaries during a downturn without triggering constructive dismissal?
It depends on the size of the reduction and how it is handled. Courts have found reductions of 10–15%+ to be constructive dismissal when implemented without consent. The best approach: seek genuine written consent, offer something in return, and provide as much advance notice as possible.
If an employee keeps coming to work after a change, can they still sue for constructive dismissal?
Sometimes. An employee who objects in writing promptly and continues working “under protest” generally preserves their claim. An employee who accepts the change without comment and works for several months is at greater risk of being found to have accepted the new terms.
Is a temporary layoff constructive dismissal in Ontario?
At common law, yes — unless the employment contract expressly permits temporary layoff. The ESA allows temporary layoffs without a contract clause, but the common law does not recognize this right without a contractual term. This is one of the most common and costly gaps in Ontario employment contracts.
Can a Performance Improvement Plan (PIP) constitute constructive dismissal?
A genuinely performance-focused PIP conducted in good faith is generally not constructive dismissal. However, if the PIP sets impossible targets designed to engineer a resignation, or is accompanied by humiliating treatment, courts may find the totality of conduct amounts to constructive dismissal.
How much can an employer be ordered to pay for constructive dismissal?
The employee is entitled to damages equivalent to what they would have received on a termination without cause: ESA minimum notice/severance plus common law reasonable notice. For a 50-year-old VP with 12 years of service earning $180,000/year in total compensation, reasonable notice could be 18–24 months — representing $270,000–$360,000 in pay-in-lieu.
This article is for general informational purposes and does not constitute legal advice. Employment law situations are fact-specific. For HR guidance on managing workplace changes, restructuring, or responding to a constructive dismissal claim, contact the HRXconnect HR consulting team.
External references: Ontario Employment Standards Act, 2000 | Occupational Health and Safety Act | Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 | Ontario Human Rights Code