In a previous post, we discussed the Supreme Court of Canada’s (“SCC“) decision in Potter v. New Brunswick (Legal Aid Services Commission), in which the SCC purported to clarify the test for constructive dismissal as it applied to suspensions. But does the decision apply to all suspensions? What if an employee is suspended because of misconduct? Or pending determination of criminal charges? And do employers have to continue paying employees while suspended for these reasons?

To help provide some guidance, we will be publishing a two-part series dedicated to the issue of suspensions: what types of suspensions exist, when suspensions should be paid, and – perhaps most importantly – what types of suspensions courts may consider to have been constructive dismissals. This post will provide an overview of the law relating to paid suspensions, while our next post in the series will address unpaid suspensions.

The Pre-Potter Framework

Economic Suspensions

Employers always hope that their companies will operate smoothly, but a changing marketplace, an economic downturn, technological advancements, and even natural disasters can lead to situations where temporary suspensions become necessary. The SCC has stated that, by entering into an employment relationship, employees implicitly accept that they are part of a whole, employers must make necessary decisions in the business’s best interest, and an individual employee’s work must be performed in a manner consistent with those decisions. The SCC also emphasized that there is a difference between suspensions necessitated by extrinsic factors, such as changes to the market, and suspensions arising out of intrinsic factors, such as the employee’s own conduct.

A 2010 decision by the British Columbia Supreme Court helpfully highlighted a number of factors that should be considered when determining whether a suspended employee has been constructively dismissed:

1. The duration of the suspension;
2. Whether someone was appointed to replace the suspended employee;
3. Whether the employee was asked for his or her keys;
4. Whether the employee continued to be paid and receive benefits;
5. Whether there is evidence that the employer intended to terminate the employee at that time; and
6. Whether the employer suspended the employee in good faith, for example, for bona fide business reasons.

It appears more likely that these factors will weigh in favour of a finding that an employee on a time-limited paid suspension was not constructively dismissed in cases of economic suspensions as opposed to, for example, disciplinary suspensions.

Investigative Suspensions

Where an employer suspends an employee for the purpose of investigating complaints or allegations of misconduct or pending the determination of criminal charges, the situation gets slightly more complicated.

Employers must demonstrate that they acted in good faith, based on sound and sufficient information, therefore having bona fide business reasons for immediate action after reasonable consideration of the interests of all parties. For example, employers receiving a litany of employee complaints about a particular employee will likely have a bona fide business reason for suspending an employee to investigate the complaints. Where a suspension is short and with pay, designed to provide an opportunity for the employer to investigate the complaints, explore options, and respond to the complaints, the suspension is likely to be found “logical and justifiable and a normal business reaction in accord with common sense.”

The same suspension, however, could have amounted to constructive dismissal if the employer had acted without good reason or with improper motivation. Similarly, constructive dismissal can occur where an employer acts cavalierly or without due regard for the effect on the employee, even if the employer has good faith grounds for the suspension.

The SCC has acknowledged that suspensions pending the determination of criminal proceedings can be justifiable, particularly where the employee is engaged in sensitive duties and the outstanding proceedings could have a negative impact on business interests. However, where the suspension is imposed unilaterally – for instance, where there is no provision in the employment agreement that provides for these types of suspensions – the SCC has stated that the employer should not suspend the payment of the employee’s salary. To do so, the SCC determined, would constitute constructive dismissal, at least in Quebec. In addition, even paid investigative suspensions can be seen as constructive dismissal if the employee is not eventually reinstated, if the suspension is lengthy from the outset, or if there are indefinite or excessive extensions.

What’s Changed and What Hasn’t?

In Potter, the SCC reiterated that suspensions could amount to a breach. Courts must consider whether a reasonable person in the employee’s circumstances would believe the employer to be acting in good faith to protect a legitimate business interest or whether that reasonable person would believe that the employer was expressing an intention to break free of the employment agreement.  Courts should also consider whether the employer’s act had a minimal impact on the employee in terms of the duration of the suspension.

Administrative suspensions, which include both economic and investigative suspensions, must be reasonable and justified. Without justification, the employer cannot be said to be exercising an implied power, and the suspension would be an unauthorized breach of the employment agreement. Given the unilateral nature of such a suspension, the employer will have almost always engaged in constructive dismissal, although rare exceptions may arise if the suspension is of a particularly short duration.

In short, it seems that the SCC’s two-branch test for constructive dismissal in Potter isn’t so much “new” as it is a reformulation of long-standing principles, framed in a systematic manner. The SCC’s decision provides guidance with respect to administrative suspensions in particular, in that any suspension that is not grounded in legitimate business interests and is not explicitly authorized by the employment contract will almost inevitably amount to constructive dismissal.

Implications for Employers

The Potter decision reiterated the importance of having employment agreements that contain language providing for paid or unpaid non-disciplinary (i.e. administrative) suspensions, at the employer’s discretion. Absent this provision, administrative suspensions, even where investigatory, should be paid and kept as short in duration as possible while still conducting a thorough investigation where applicable.