Most people assume that to have an employment law claim, they must have been formally fired. That is not always true. Ontario law recognizes "constructive dismissal" — a situation where the employer makes the employment relationship so fundamentally different or intolerable that the employee has no reasonable choice but to resign. In law, that resignation is treated as a termination, and the employee becomes entitled to wrongful dismissal damages.

The legal test

The Supreme Court of Canada set out the constructive dismissal framework in Potter v New Brunswick Legal Aid Services Commission. There are two ways to establish it:

1. The employer makes a unilateral and substantial change to a fundamental term of employment that the employee did not consent to; or

2. The employer's conduct, taken as a whole, demonstrates an intention no longer to be bound by the contract.

Demotion or significant change in duties

One of the most common forms of constructive dismissal is a significant reduction in title, responsibilities, or direct reports without the employee's consent. Being moved from a senior leadership role to a lower position, losing signing authority, or being stripped of meaningful duties are all examples courts have recognized. The change must be substantial and unilateral — not a minor adjustment within the scope of the existing role.

Pay cuts and bonus elimination

A significant reduction in base salary, or the unilateral elimination of a bonus that formed a genuine part of compensation, is another recognized form of constructive dismissal. Ontario courts have found constructive dismissal where employers cut compensation by as little as 10 to 15 percent without employee agreement, particularly where the reduction was sustained.

Temporary layoffs: consistently treated as constructive dismissal

Ontario courts have repeatedly held that placing an employee on an indefinite or "temporary" layoff without specific contractual authority constitutes constructive dismissal. The Employment Standards Act permits temporary layoffs within defined parameters, but common law does not follow the ESA automatically. Unless the employment contract expressly authorizes the employer to lay off the employee, a layoff is a constructive dismissal.

Toxic or poisoned work environment

A workplace that has become genuinely intolerable due to harassment, bullying, or discriminatory conduct can also give rise to a constructive dismissal claim. The threshold is high — courts look for pervasive and sustained conduct that a reasonable person in the employee's position would find untenable. Ordinary workplace friction or a difficult manager does not meet that standard.

PIPs used as a pretext

Performance improvement plans can be legitimate management tools, but Ontario courts are alert to PIPs that are effectively designed to fail — with unrealistic goals, impossibly short timelines, and criteria that guarantee termination. Where the purpose of the PIP is to pressure resignation rather than to address genuine performance concerns, courts have found that it constitutes constructive dismissal in itself.

The timing risk: act before it is too late

If you continue working after a fundamental change to your employment without objecting, courts may find that you have implicitly accepted the new terms. This is a serious risk. If you are facing a significant unilateral change, you need to document your objection and seek legal advice promptly.

King Law · Employment Lawyers · Oshawa, Ontario 📧 steven@kinglaw.ca | 🌐 kinglaw.ca

This post provides general legal information for Ontario employees. It is not legal advice. Contact us directly for advice specific to your situation.