Many employers assume that they can demote an employee as a disciplinary measure and are shocked to learn that doing so might constitute a constructive dismissal. In fact, it will be a constructive dismissal in most cases. The exception we usually reference is where the organization is unionized, as many collective agreements allow for demotion as a form of discipline. However, there is another context in which demoting an employee may be allowed: when just cause for dismissal exists, and the employer chooses to demote the employee instead of dismissing them.
Constructive dismissal? What is it?
As we often explain, a constructive dismissal is a unilateral and substantial change to a fundamental term of the employment relationship. So the key components are:
- Substantial change, and
- Fundamental term.
It is beyond debate that an employee’s position or role within an organization is a fundamental term of their employment. A demotion is almost always a substantial change, and if it is made unilaterally, you have all the elements of a constructive dismissal.
Demotion as discipline
There is a common belief that employers can impose suspensions, demotions, and other forms of discipline. The simple reality is that unless they have a contractual right to do so, then such actions are usually beyond their rights and constitute constructive dismissals. Suspensions are common within the unionized world, but that is because collective agreements (the contract) allow for them. Otherwise, employers cannot simply impose them. Demotions are less common but equally and more troublesome because unlike a suspension, a demotion is more permanent and therefore an even more substantial change.
As an aside, in my book, You’re Fired! Just Cause for Dismissal in Canada, I comment on the fact that non-unionized employers have very few options available to them when it comes to discipline. Warnings are, effectively, the one type of discipline that is relatively risk-free.
Just cause for demotion
That said, a dismissal will not be wrongful if there is just cause. The same principle applies to a constructive dismissal; just cause will be a valid defence to any claim. That has been confirmed in O’Dwyer v. Dominion Soil Investigation Inc. and Lowery v. Calgary (City), affirmed by the Alberta Court at https://www.canlii.org/en/ab/abca/doc/2002/2002abca237/2002abca237.html?resultIndex=1.
Plaintiffs in wrongful dismissal claims always have a duty to mitigate by making reasonable efforts to find new work. In the context of constructive dismissal claims, the duty to mitigate may require that the employee remain in their new role until they can find new work. After all, they have a job, and even if it is not the one they “signed up for”, continuing to work will allow them to mitigate their damages.
Essentially, an individual will be expected to remain in the new, lesser role unless it would not be reasonable for a person to do so, such as if it would be demeaning or if there is a dangerous or a toxic work environment. A plaintiff who chooses not to remain in the new role risks that even if their constructive dismissal claim is successful, their recovery can be drastically reduced.
A practical approach
In some cases, it becomes clear that an employee is not able to handle the role they are in. Perhaps they were promoted from another position, or perhaps they were just hired into the wrong role. Either way, if just cause for dismissal exists, then the employer can take a more creative approach and offer the employee a different role for which they are better suited. Rather than imposing a unilateral demotion, however, it would be more prudent to offer the employee the choice: dismissal or demotion. If the employee accepts the demotion, it can be documented properly so that the employer eliminates the risk of a constructive or wrongful dismissal claim entirely.
Just cause is a defence, but it’s not easy to prove
As I say repeatedly in my book and elsewhere, the threshold for establishing just cause is high. That is particularly true when it comes to performance issues. As a result, employers that defend wrongful or constructive dismissal claims on the basis of just cause undertake a degree of risk. If they are unsuccessful, then they will be liable for potential extensive damages.
As a mediator, I see many just cause allegations. Some of them are clearly doomed to fail and/or pleaded for strategic purposes. Others are credible, but none are guaranteed to succeed. Every allegation of just cause must be assessed based on the particular facts of the case. That not only includes the misconduct or poor performance in question, but a contextual analysis which takes into account factors such as the employee’s length of service, past disciplinary history and response when confronted with the allegations.
Pith and substance
Constructive dismissal cases and just cause cases are among the more difficult to predict. Put the two together and you have a very uncertain outcome. For that reason, it is usually prudent to negotiate an agreement rather than impose a result. Employers should get legal advice before proceeding with dismissals, demotions or suspensions, and employees should get proper advice before accepting them.