Constructive Dismissal in Ontario

Constructive dismissal is one of the most frequently litigated issues in Ontario employment law. It arises when an employee resigns, but the resignation is treated in law as a termination by the employer because the employer has fundamentally altered the employment relationship. Where constructive dismissal is established, the employee may be entitled to the same types of remedies that follow a without-cause termination, including damages in lieu of notice.

This page provides an overview of constructive dismissal principles in Ontario and the issues that commonly determine liability and compensation.

What Is Constructive Dismissal?

In Ontario, constructive dismissal generally refers to a situation where an employer, without the employee’s agreement, makes a change (or series of changes) that is so significant that it amounts to a repudiation of a key term of the employment contract, or otherwise demonstrates that the employer no longer intends to be bound by the employment bargain.

Although the employee may appear to have “quit,” the law may treat the resignation as being forced by the employer’s conduct—effectively a termination.

Common Examples of Conduct That May Trigger a Constructive Dismissal Claim

Constructive dismissal allegations often involve one or more of the following:

• Compensation changes: reduction in salary, commission structure, bonus opportunity, or removal of key allowances
• Demotion or loss of status: significant reduction in responsibility, authority, or reporting level
• Major change to duties: reassignment to substantially different work, loss of managerial functions, or change in role that undermines the employee’s position
• Location changes: forced relocation, new travel requirements, or a change in work location that materially affects the employee
• Hours/schedule changes: significant change to shift patterns, workload allocation, or hours affecting earnings or family responsibilities
• Layoffs: a “temporary layoff” imposed without contractual authority or established workplace practice may be treated as constructive dismissal, even where the ESA contemplates temporary layoffs for statutory purposes
• Workplace treatment: in serious cases, conduct that undermines the employment relationship (e.g., discriminatory or humiliating treatment, a poisoned work environment)

Not every workplace change will meet the legal threshold. The analysis focuses on whether the change is fundamental, not merely inconvenient or undesirable.

How Ontario Courts Analyze Constructive Dismissal

Constructive dismissal is highly fact-specific. Courts typically examine:

• The terms of the employment agreement (including any flexibility clauses)
• Whether the change was unilateral or agreed to
• The magnitude and impact of the change on the employee’s role, compensation, or status
• The context (including how the change was implemented and communicated)
• Whether the employer provided advance notice of the change, which may affect the analysis in certain circumstances
• Whether multiple smaller changes cumulatively amount to a fundamental alteration of the relationship

Two common pathways are often argued in litigation:

1. A single fundamental change to an essential term; or
2. A course of conduct indicating the employer’s intention not to be bound by the employment relationship (sometimes described as a “poisoned” or untenable workplace situation).

Timing and “Acceptance” of the Change

A recurring issue is whether the employee objected promptly or instead accepted the new terms. If an employee continues working for an extended period without clear objection, the employer may argue that the employee condoned the change.

That said, employees may sometimes continue working temporarily while seeking clarification, attempting resolution, or assessing options. How communications are documented—emails, meeting notes, and written proposals—often becomes central evidence.

Constructive Dismissal vs. Wrongful Dismissal

• Wrongful dismissal typically involves an express termination and a dispute over notice/compensation.
• Constructive dismissal involves a resignation prompted by the employer’s actions, with the central question being whether the resignation should be treated as a termination.

If constructive dismissal is proven, the remedies are commonly similar to those available following a without-cause termination.

Remedies and Potential Compensation

If constructive dismissal is established, the employee may be entitled to:

• ESA minimum entitlements (termination pay/notice, benefit continuation, and potentially ESA severance pay if eligibility criteria are met); and
• Common law reasonable notice damages, unless a valid and enforceable employment contract limits entitlements to ESA minimums.

Depending on the compensation structure and the governing documents, damages may address:

• Base salary
• Benefits (including the value of lost coverage)
• Bonuses and incentive compensation (often a significant point of dispute)
• Commissions and allowances, where applicable

Mitigation

As with wrongful dismissal, a dismissed employee is generally expected to take reasonable steps to mitigate losses by seeking comparable employment. Income earned during the reasonable notice period can reduce damages, depending on the circumstances.

Why Constructive Dismissal Claims Are Often Complex

Constructive dismissal disputes frequently turn on nuanced issues, including:

• Whether a change is “fundamental” in the legal sense
• Whether the employment contract authorized the employer’s action
• Whether the employee’s response amounted to acceptance
• How variable compensation should be treated during the notice period
• Whether other claims (e.g., under the Human Rights Code) intersect with the facts

This information is provided for general informational purposes only and does not constitute legal advice. Reading this page does not create a solicitor-client relationship. Outcomes depend on the specific facts and applicable law.