Employment Law: Constructive Dismissal

How to Limit Exposure to Constructive Dismissal Claims

 

There are a number of things that can occur in an employment relationship that will give an employee a right to claim constructive dismissal. Successful constructive dismissal claims can be costly for companies, particularly in the case of employees who have long service with the company or who are in senior management or executive roles. Companies have to pay employees who have been constructively dismissed the same amount of compensation they would pay to an employee who was fired without cause.

 

There are a number of things that companies can do to reduce the risk of a successful constructive dismissal claim. The strategies vary according to the circumstances that lead to the constructive dismissal. The most common events giving rise to constructive dismissal claims are demotions or changes in duties; reductions in compensation; and hostile work environments.

 

Here are suggestions for strategies that will reduce the likelihood of an employee succeeding with a constructive dismissal claim:

 

DEMOTION OR REDUCTION IN DUTIES:

  • Make sure all offer letters and employment agreements contain language that expressly allows for changes to the employee’s roles and responsibilities
  • Give as much notice as possible before implementing a change
  • Whenever possible, consult with the employee about the proposed changes
  • Delay the implementation of any change in compensation that might come with the demotion
  • Attempt to ensure the new role includes meaningful responsibilities and makes appropriate use of the employee’s skills and experience

 

DECREASE IN COMPENSATION:

  • Make sure all offer letters and employment agreements allow for reductions in compensation
  • Give as much advance notice as possible before implementing the change
  • Keep decreases to less than 10% of total compensation
  • Spread any decrease out over time
  • Apply changes consistently across the entire workforce

 

WORKPLACE HARASSMENT:

  • Implement a workplace harassment policy and enforce it consistently
  • Actively promote a respectful workplace culture
  • Provide employees with an anonymous, or at least confidential, way of making complaints
  • Conduct a meaningful investigation of any complaint with a scope that is appropriate to the circumstances