Constructive dismissal: the Court of Appeal weighs in
On May 18, 2023, in Lareau c. Centre du camion Gamache inc., the Court of Appeal of Quebec issued a decision of particular interest regarding the concept of constructive dismissal, clarifying the circumstances that constitute constructive dismissal and calculation of any compensation due, if any.
The factual background of this case is complex and characterized by a historically strained relationship between the employee and the employer. The appellant, a sales manager, had been with the employer for more than 20 years when his position was eliminated right as he went on sick leave in December 2013. When he returned to work in October 2014, he was presented with a new employment contract after negotiations regarding his working conditions (his salary and commission were reduced and his retention plan was abolished). This contract (the “Contract”) stated that going forward he would hold the position of sales representative. It was signed in 2015 and provided as follows:
5. The employee’s superior is the President of the employer; however, the employee must work in collaboration with the sales coordinator.
6.3 Profit sharing with the company (Centre du Camion Gamache and Gamex):
For the period from October 1, 2014, to February 28, 2015, the employee is entitled to 5% of the company’s pre-tax profits. From March 1 to December 31, 2015, the employee will be entitled to 2.5% of the company’s pre-tax profits. In 2016, the employee will no longer be entitled to profit sharing, unless otherwise agreed in writing by the parties;
6.4 The employer shall remit to the employee, no later than April 15, the amounts due to the employee, i.e.:
a) full reimbursement of the premiums paid for critical illness insurance, including the premium for 2014;
b) full payment of the amounts under the retention plan (balance of amounts accrued since 2011);
c) payment of base salary and commission adjustments from February 1, 2015, to the present.
The appellant received a first payment of $20,000 in April 2015, pursuant to clauses 6.3 and 6.4 of the Contract. The appellant then requested (for the first time) the company’s financial statements in order to calculate what was owed to him under clause 6.3 on profit sharing.
In May 2015, the appellant received a final payment of $69,066.49 pursuant to clauses 6.3 and 6.4, for a total of $89,066.49, far less than the amount he had expected. The appellant then twice repeated his request for the company’s financial statements to verify the amounts owed to him, but to no avail. The following month, he received his first disciplinary notice for violating company policy.
In July 2015, the appellant made a formal request to his employer to provide him with documents that would allow him to verify the amounts due under the retention plan and accused his employer of psychological harassment.
In October 2015, a new sales manager was appointed and the appellant was assigned to a new, isolated office. Facing an impasse, he resigned on October 30, 2015. It was not until 2016, in response to a petition, that the Superior Court ordered the company to disclose its financial statements to the employee.
In her decision, the trial judge concluded that the appellant’s resignation was free and informed because [translation] “the decisions (1) to revoke the appellant’s access to the cost of the items sold; (2) to implement the policy; (3) to relocate the appellant’s office; and (4) not to reimburse the small amount of $256.12 owed by Richard Gamache do not constitute substantial changes in the appellant’s working conditions and were not taken with the intent to force him to resign.”1
The state of the law on constructive dismissal
The Court of Appeal of Quebec, per the Honourable Sophie Lavallée, allowed the appeal and reversed the trial judge’s decision for the following reasons.
The Court of Appeal confirmed that constructive dismissal may be found in the case of one or more material breaches of the employment contract, as well as when the employer’s decisions or overall conduct create the reasonable impression that it no longer intends to be bound by the employment contract. The employer’s overall conduct need not constitute psychological harassment. Any one of the above situations is sufficient to find constructive dismissal.
The Court of Appeal also reiterated that the test is that of a reasonable person in the employee’s situation—a test that does not require proof of malice on the part of the employer, nor a specific intent to get rid of the employee in question.
Material breach of contract
Applying the law to the facts, the Court of Appeal concluded that the employer’s breaches of the terms of the employment contract constituted a material breach, noting that the breach of clauses 5, 6.3 and 6.4 should have been analyzed more rigorously. Given the negotiations that led to clause 5, which specifies to whom the employee reports, the breach of this clause constituted a material breach of the employment contract.
Furthermore, for clauses 6.3 and 6.4, the refusal to provide an employee with the documents necessary to properly calculate the amount due to him under a profit-sharing clause constituted a material breach of the terms and conditions of employment, all the more so if the employee had serious doubts as to the amounts paid by the employer.
The Court of Appeal thus held that a reasonable employee would have concluded that these breaches of the employment contract constituted constructive dismissal.
The Court of Appeal also noted that with respect to severance pay, and more specifically the application of article 2092 of the Civil Code of Québec, one mustn’t forget that the appellant was still an employee during his leave and would have benefited from his retention plan accordingly. The employer cannot therefore refuse to pay the benefits of the retention plan on the basis of a contractual clause requiring the employee to still be working.
Although this is only a summary of a decision that is sure to be the subject of much comment, employers would be wise to pay close attention to the clauses they have negotiated with their employees and be mindful that failure to comply with many of them could, depending on the context, constitute constructive dismissal.
For more information or advice on how to analyze the risks involved and, more importantly, how to avoid them, please contact our Labour and Employment Law group.
1 2023 QCCA 667 at para 77 (arguments taken from the Superior Court decision: 2019 QCCS 5077 at para 50).