Administrative Suspension Can Constitute Constructive Dismissal

On March 6, 2015, the Supreme Court of Canada (SCC) released its decision in Potter v. New Brunswick Legal Aid Services Commission, which considers whether employers may place employees on administrative suspensions.¹ In its decision, the SCC held that employers do not have unfettered authority to withhold work from their employees and that legitimate business reasons must be shown in the context of any administrative suspension. Absent such reasons, an administrative suspension—even with pay—may be found to be a constructive dismissal.

The SCC’s decision applies the reasoning in Bhasin v. Hrynew, a landmark 2014 ruling in which the SCC held that there is an implied duty to perform contracts in good faith.² Potter is the first case to apply Bhasin in the employment context.

Background

Mr. Potter was appointed to serve a seven-year term as the Executive Director of the New Brunswick Legal Aid Services Commission. During the first few years of his term, the relationship between Potter and the Commission deteriorated, and the Commission began negotiating a buy-out of Potter’s contract. Before terms were finalized, Potter went on sick leave. Prior to his return, the Commission put Potter on an indefinite administrative suspension with full pay and benefits, and assigned his powers and duties to another employee. At the same time (and without Potter’s knowledge), the Commission recommended that the Minister of Justice terminate Potter’s employment for cause. Potter perceived the administrative suspension as mistreatment, and sued the Commission on the basis that he had been constructively dismissed.

The Supreme Court’s Decision

The SCC allowed Potter’s appeal and found that he had been constructively dismissed as a result of the administrative suspension. In particular, the SCC found that:

• the terms and conditions of Potter’s employment did not expressly or impliedly authorize the Commission to suspend his employment indefinitely with pay, and therefore the suspension constituted a breach of the employment contract;
• the suspension substantially altered an essential term of Potter’s employment in that (a) the Commission was not acting in good faith to protect a legitimate business interest, (b) the suspension did not have minimal impact on Potter in terms of its duration and (c) Potter’s powers and duties were reassigned during his suspension, effectively replacing him; and
• the breach was sufficiently serious to constitute constructive dismissal.

Key Messages for Employers

In reaching its decision, the SCC made a number of findings of which employers should take note.

Authority to Withhold Work Is Never Unfettered

The SCC held that whether or not a suspension with pay is authorized by a particular employment contract will be a fact-specific inquiry in each case. For commissioned employees or employees who derive a reputational benefit from the performance of their work, a suspension with pay will constitute a breach of an implied contractual term to provide work to an employee. Whether or not there is a breach of an implied term to provide work to an employee will turn on whether the administrative suspension is reasonable or justified. The SCC emphasized that no employer is at liberty to withhold work from an employee in bad faith or without justification.

In considering whether an administrative suspension is reasonable or justified, the SCC held that an employer must be able to show legitimate business reasons for the suspension. Further, an administrative suspension will in most cases not be justified in the absence of a basic level of communication with the employee, including, at a minimum, providing the employee with reasons for their suspension.

Application of Duty of Good Faith to Employment Contracts

The SCC’s decision in Bhasin held, among other things, that there is an implied duty to perform contracts in good faith. The Supreme Court in Potter applied the reasoning in Bhasin, finding that the Commission had not acted in good faith in its suspension of Potter. In particular, the SCC held that "acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright. Failing to give an employee any reason whatsoever for his suspension is not being forthright."

Conclusion

It should be noted that Potter did not involve a suspension for misconduct. Therefore, questions related to an implied authority to suspend an employee for disciplinary reasons, or an implied obligation to impose a lesser sanction, such as suspension where there is cause for dismissal, did not arise in the Court’s analysis. Presumably, a suspension pending the outcome of a legitimate investigation into possible workplace misconduct would be reasonable and justifiable.

Employers may consider including terms in employment contracts expressly allowing for administrative suspensions in certain circumstances to avoid any uncertainty. Employers imposing administrative suspensions should also take care to conduct administrative suspensions in good faith, including by providing employees with reasons for suspension.

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¹ 2015 SCC 10 [Potter].

¹ 2014 SCC 71 [Bhasin].

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