What Counts as Constructive Dismissal in Canada?

What constructive dismissal means

Constructive dismissal is a legal finding, not something an employer announces. It arises when an employer unilaterally makes a substantial change to an essential term of the employment contract, the employee does not agree to the change, and the employee treats the job as over. The Supreme Court of Canada has been explicit on this point: “[w]here an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been constructively dismissed” (Farber v Royal Trust Co, 1997 CanLII 387 (SCC)). In other words, on paper it can look like a resignation, but the law treats it as a termination the employer caused. This is a common-law rule set by the courts, so it applies the same way whether the employee works in Ontario, Alberta, or a federally regulated industry.

The two-part test courts apply

The Supreme Court refined the analysis in Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10, which asks two questions in sequence: first, whether the employer committed a unilateral act that breaches the employment contract, and second, whether that act substantially changed an essential term of the contract. Both parts have to be satisfied. A change the employee agreed to, even reluctantly, is not unilateral and does not qualify. Federally, the ESDC’s interpretation guidance puts the same point plainly: “[t]he employer’s action must be unilateral, which means the employer must do it without the consent of the employee. If it is not unilateral, the variation is not a constructive dismissal but merely an agreed change to the contract of employment.”

The forms this takes in practice

Under the Canada Labour Code framework, the ESDC notes that “the most common cases of constructive dismissal are where the employee leaves as a result of material changes in powers or duties,” such as a demotion or a stripped-down role. Ontario’s Ministry of Labour guidance broadens the picture: a constructive dismissal under the Employment Standards Act, 2000 “may occur when an employer makes a significant change to a fundamental term or condition of an employee’s employment without the employee’s actual or implied consent.” That guidance also confirms constructive dismissal can include an employer harassing or abusing an employee, or giving an employee an ultimatum to “quit or be fired” that leads to resignation. Alberta’s government guidance frames the same idea in blunter terms: constructive dismissal happens when an employer “unilaterally does something so contrary to the employment relationship that the action forces the employee to quit” (alberta.ca).

Layoffs are a common trigger

Layoffs deserve their own mention because they catch people off guard in both provinces. In Ontario, a layoff “even if intended to be temporary, may result in constructive dismissal if it is not allowed by the employment contract” (Ontario Ministry of Labour). In Alberta, the Employment Standards Code permits employers to lay employees off temporarily, but the Government of Alberta confirms that courts have held an employee laid off without contractual authorization “maintains the right to sue for constructive or wrongful dismissal.” The statutory permission to lay off and the contractual right to do so are two different things, and the gap between them is where many claims arise.

A worked example

An Ontario employee works as a sales manager earning a base salary plus commission. Her employer moves her to an inside customer-service role at the same salary but removes all commission and management responsibility, without her sign-off. She continues working for two weeks while raising objections in writing, then resigns and states the changed role prompted it. Applying the Potter test: the employer’s move was unilateral (she never agreed), and it changed an essential term of her contract, her role and compensation structure, not a minor detail. Under the Ontario ESA guidance, this fits the description of a significant change to a fundamental term made without consent, supporting a constructive dismissal claim rather than a voluntary resignation.

Common mistakes

• Assuming any unwanted change qualifies. The test requires a substantial change to an essential term, not any change the employee dislikes; a minor adjustment to reporting lines or a small schedule shift is unlikely to meet the Potter threshold on its own.
• Treating an agreed change as a dismissal. If the employee consented, even informally, the change is not unilateral, and the ESDC guidance is explicit that a consented variation is not a constructive dismissal.
• Assuming a temporary layoff is automatically lawful. In Ontario and Alberta alike, a layoff without contractual authorization to lay off can itself be the constructive dismissal, regardless of how the employer intended it.
• Ontario-specific: overlooking harassment or ultimatums as a route to a claim. The Ontario ESA guidance recognizes harassment, abuse, or a “quit or be fired” ultimatum as forms of constructive dismissal, not just changes to pay or duties.
• Alberta-specific: not knowing the complaint route exists. Employees who believe they are owed termination pay because of a constructive dismissal can file an employment standards complaint in Alberta rather than assuming court is the only option.