For many employers, termination is a deliberate decision. Constructive dismissal is different. It often arises unintentionally, through ordinary business decisions that fundamentally change an employee’s job.
For small and mid-sized employers in Alberta, particularly those adapting to economic pressure, restructuring, or growth, constructive dismissal is a risk that deserves careful attention. A well-intentioned change to compensation, duties, or workplace policies can expose an employer to the same legal consequences as a wrongful termination.
Understanding how constructive dismissal works, and how to reduce the risk, can help employers manage change more confidently.
What Is Constructive Dismissal?
Constructive dismissal occurs when an employer does not formally terminate an employee, but instead makes a unilateral change that substantially alters a key term of employment. In law, the employee is treated as though they were dismissed, even though they may have technically resigned.
Courts generally recognize two ways constructive dismissal can arise. The first is where an employer imposes a fundamental change to the employment contract without the employee’s agreement. The second is where an employer’s conduct demonstrates an intention not to be bound by the employment relationship at all, such as by permitting a toxic or hostile work environment.
In either case, the focus is not on the employer’s intent. Even changes made for legitimate business reasons can amount to constructive dismissal if they significantly alter the employee’s job from what was originally agreed.
What Changes Can Trigger Constructive Dismissal?
Constructive dismissal claims often stem from changes employers consider necessary or routine. Compensation changes are a common example. Reductions in salary, significant changes to commission or bonus structures, or the removal of benefits can all qualify if they materially affect an employee’s overall compensation.
Changes to an employee’s role or status can also be problematic. Demotions, the removal of core responsibilities, or a loss of authority or decision-making power may fundamentally alter the nature of the job, even if the employee’s title remains the same.
Work location and scheduling changes are another frequent source of claims. Forced relocations, significant changes to hours, or reductions from full-time to part-time work can have a substantial impact on employees, particularly where family or caregiving obligations are involved.
Finally, constructive dismissal can arise from workplace conduct. Persistent harassment, bullying, or a failure to address serious conflict may signal that the employer no longer intends to uphold the employment relationship. While a single incident is rarely enough, an ongoing pattern of behaviour can meet the legal threshold.
How Constructive Dismissal Affects Employers
When constructive dismissal is established, the legal consequences for employers are significant. The employee may treat the situation as a termination and pursue a wrongful dismissal claim.
In practical terms, this can mean liability for pay in lieu of notice, severance damages, and the continuation of benefits. If the employment contract does not contain an enforceable termination clause, courts will assess damages based on common law notice, which often far exceeds the minimum standards set out in Alberta’s Employment Standards Code.
Beyond financial exposure, constructive dismissal claims can result in legal costs, lost management time, and damage to workplace morale. For smaller employers, these consequences can be particularly disruptive.
Why Employers Often Get Caught Off Guard
Many constructive dismissal claims arise not because an employer acted in bad faith, but because of assumptions about what is permitted. Employers may believe that giving advance notice of a change is enough, or that business necessity justifies unilateral action. Others rely on informal conversations or outdated contracts without appreciating how closely courts scrutinize employment terms.
In many cases, the problem is not the change itself, but the way it is introduced and documented.
The Role of Termination Clauses
Termination clauses are a critical risk-management tool in constructive dismissal cases. If a court finds that an employee was constructively dismissed, a termination clause may limit what the employer owes.
To be enforceable in Alberta, termination clauses must clearly comply with employment standards legislation and be drafted without ambiguity. Clauses that fall below statutory minimums, or that are unclear, risk being set aside entirely. When that happens, the employer’s exposure reverts to common law notice.
Because constructive dismissal often arises years into the employment relationship, it is important that termination clauses be reviewed and updated as roles, compensation, and responsibilities evolve.
Other Contract Language That Can Reduce Risk
In addition to termination clauses, other provisions in employment contracts can help employers manage change. Flexibility clauses may allow employers to make reasonable adjustments to duties, reporting relationships, or work locations, provided those changes are exercised in good faith.
Policy incorporation clauses can clarify that workplace policies are not contractual terms and may be amended over time. This gives employers more room to update policies without triggering claims that the employment contract has been fundamentally altered.
Where relevant, express language addressing temporary layoffs or reductions in work is also important. Without clear contractual authority, even short-term changes can give rise to constructive dismissal claims.
Managing Change Without Creating Legal Exposure
Before implementing significant changes, employers should take time to assess the potential impact on employees. Reviewing employment contracts, communicating openly, and considering whether employee consent or compensation is required can significantly reduce risk.
In some cases, providing notice of change or offering an incentive in exchange for agreement may be appropriate. In others, seeking legal advice before changes are implemented can prevent costly disputes later.
Key Takeaways for Alberta Employers
Constructive dismissal is not about whether an employer intended to terminate an employee. It is about whether the employee’s job has been fundamentally altered. Many claims arise from ordinary business decisions, particularly during periods of change.
Well-drafted employment contracts, clear communication, and thoughtful planning are often the most effective ways to avoid disputes. For Alberta employers, proactive attention to these issues can make the difference between managing change smoothly and facing an unexpected wrongful dismissal claim.
