Employer Wrongfully Operated in Secret: Potter v New Brunswick Legal Aid Services

The Supreme Court of Canada’s (“SCC”) decision in Potter v New Brunswick Legal Aid Services, 2015 SCC 10 [Potter], calls on employers to communicate transparently with employees, unless legitimate business reasons require otherwise. The decision arose from a claim of constructive dismissal that had been denied by both the trial and appellate courts of New Brunswick.

Unlike those courts, the Supreme Court determined that a claim of constructive dismissal could be made even when it relied on employer actions that were unknown to the employee when the claim was made. The SCC’s decision reinforces a protective stance towards employees as vulnerable persons in the employment relationship, while clarifying employers’ responsibility to maintain accountability in decision-making and transparency in communications as far as possible.

The Facts

The Plaintiff, David Potter, was appointed to a 7-year term as Executive Director of New Brunswick Legal Aid Services in 2005. By 2009, the relationship between the Plaintiff and the employer had deteriorated, leading to negotiations over a “buyout” of the Plaintiff’s contract. As negotiations proceeded, a medical condition also caused the Plaintiff to take an extended, approved leave of absence.

When negotiations remained unconcluded in early 2010, the employer’s Board of Directors (“the Board”) advised its Chair to contact the Minister of Justice (“the Minister”) and recommend terminating the Plaintiff for cause. Meanwhile, the Board provided the Plaintiff with no information concerning its recommendation. Instead, the Board informed the Plaintiff that he would be indefinitely placed on administrative (i.e., non-disciplinary) suspension.

The Plaintiff brought action against the employer, claiming that an indefinite administrative suspension constituted his constructive dismissal, and entitled him to damages amounting to full payment for the remainder of his contract term.

The Decision at Trial

The Plaintiff’s claim was denied at trial, 2011 NBQB 296. In rendering the decision, the trial judge determined that the Plaintiff could not rely on information unknown to him at the time his claim, and that the remainder of the evidence did not prove constructive dismissal.

A constructive dismissal, according to the trial judge, occurs where words or actions of an employer would lead an objective observer to conclude that an employee had been removed from his duties permanently. However, the Plaintiff in this case “could hardy allege that he was constructively dismissed based on something the employer did unbeknownst to him” (para 36). In other words, constructive dismissal was to be determined on an objective test applied to the information subjectively held by a Plaintiff at the time of an alleged dismissal.

The Decision of the NBCA

Affirming the ruling at trial, New Brunswick Chief Justice Drapeau wrote the unanimous decision of a panel of the New Brunswick Court of Appeal (“NBCA”), 2013 NBCA 27.

The Court of Appeal’s affirmation relied on the standard set out in Farber v Royal Trust Co, [1997] 1 SCR 846 [Farber], which requires a “fundamental or substantial change to an employee’s contract of employment” to constitute a constructive dismissal. According to the NBCA, an administrative suspension of the Plaintiff, without more, did not suffice to constitute such fundamental or substantial change.

While the NBCA found that the indefinite nature of the Plaintiff’s suspension did weigh in favour of a finding of constructive dismissal, other factors weighed more heavily against this finding. Taken from Devlin v NEMI Northern Energy & Mining Inc, 2010 BCSC 1822 (para 50), these factors included the continuation of the Plaintiff’s pay and benefits, and the Board’s not asking the Plaintiff to return his Blackberry, laptop or other work-related supplies.

The NBCA questioned the trial judge’s determination that only the circumstances known to the Plaintiff could be considered in assessing his claim. However, any error arising from this determination was deemed to be “wholly harmless” (at paragraph 94) as the employer was found to have acted within the scope of the employment contract rather than in repudiation of it.

The Decision of the SCC

At the Supreme Court, a unanimous panel of seven overturned the trial decision that had been affirmed by the NBCA. Despite the differences between the reasoning of the majority and minority judgments, both judgments agreed that the NBCA erred in holding that the narrow scope of circumstances considered by the trial decision was “wholly harmless.”

The Majority Decision

Written by Justice Wagner, the majority decision determined that the trial judge had erred in failing to consider the two elements of constructive dismissal as two independent steps in a single test. Applying Farber, the majority set out these independent steps as: (1) proving that the employer’s conduct, whether by a single action or a series of acts, demonstrated “an intention to no longer be bound by the contract” on an objective standard; and (2) proving that “a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed” (Farber, para 26).

With respect to the first branch, the majority determined that the employer had repudiated the employment contract in its manner of administratively suspending the Plaintiff. According to the majority, any employer’s right to administratively suspend an employee must be fettered by the principles of good faith, minimal impact and by legitimate business reasons. The Board failed to meet this requirement because “administrative suspension cannot be found to be justified in the absence of a basic level of communication with the employee” (para 99).

The majority also concluded that the second branch of the test was breached, characterizing this conclusion as “inevitable” in cases where an administrative suspension is not reasonable or justified. While this finding suggests that the two branches of the test may not be perfectly independent, the majority did not address this.

The Minority Decision

The minority reached the same conclusion with respect to constructive dismissal, but arrived there by a different route.

The minority decision of Justice Cromwell and Chief Justice McLachlin determined that constructive dismissal could be based on one of two grounds: either (1) the employer repudiates the contract by unilaterally changing its terms and thereby committing a fundamental breach; or (2) the employer engages in conduct that evinces an intent not to be bound by the contract. An important distinction between these grounds is the type of evidence that each admits as support for a claim of constructive dismissal.

If a claim is made on the first ground, then the case will turn on whether a reasonable person in the employee’s position would consider the employer’s breach to have fundamentally changed the terms of the employment relationship.

When a claim is made on the second ground, the case turns on the employer’s intent rather than the employee’s reasonable apprehension. Therefore, the court must evaluate the employee’s claim in light of all circumstances, whether they are known or unknown to the employee at the time of making the claim.On determining that the Plaintiff’s claim was based on this ground, the Minority found that the employer’s decisions, to administratively suspend the Plaintiff in order to facilitate buyout discussions and possible termination, amply sufficed as evidence of the employer’s intent not to be bound by the employment contract.

Implications

For employers, the Supreme Court’s decision means that careful attention to procedural fairness will be required in any decision to administratively suspend an employee. In keeping with the context-specific nature of procedural fairness as defined in administrative law (see Baker v Canada, [1999] 2 SCR 817, para 22), the SCC did not define specific procedures to be applied across all cases. It will remain for individual employers to determine what constitutes the requisite “basic level of communication with the employee” in any individual case.

What is made clear in both the minority and majority decisions, however, is that information that is withheld from employees can become  a subject of scrutiny in subsequent constructive dismissal claims. For employers, one key point arising from Potter is the importance of ensuring that any decision to withhold of information can be justified in accordance with good faith intentions and legitimate business reasons.

For employees, the procedural rights clarified in Potter open a means of seeking redress where employers are not forthcoming in providing reasons for their decisions – particularly decisions to impose an administrative suspension.

The Supreme Court’s decision in Potter reinforces the court’s past emphasis on protecting employees as vulnerable persons (see Machtinger v HOJ Industries Ltd, [1992] 1 SCR 986) by recognizing the employment relationship as one of open communications and accountability. Where employers fail to adopt practices in line with those principles, they may be found to have repudiated the employment relationship and will owe damages as a consequence.