It is crucial to understand what could trigger a constructive dismissal claim to avoid costly legal errors and risks when undergoing a restructuring of the business.

Corporate restructuring is often necessary to remain competitive – whether due to tariff caused economic pressures, technological advances, post-pandemic workplace realignment, or a major merger and acquisition. However, when restructuring changes employees’ roles or job descriptions, employers face a significant risk: claims of constructive dismissal and substantial termination pay. If not properly managed, claims for significant termination pay, loss in key personnel, disruption of operations, and a reconsideration of how the organization was restructured can be triggered.

What Is Constructive Dismissal?

The Supreme Court of Canada in Farber v. Royal Trust Co., [1997] 1 SCR 846 (“Farber”) explained that constructive dismissal occurs when an employer unilaterally makes a substantial change to the essential terms of the employment contract without the employee’s agreement. An employee faces the stark choice of accepting these unilateral changes, or  to take the step of treating the relationship as terminated, even though no formal dismissal has occurred. The court also stated the test:

At the time the offer [of new employment contract terms] was made, 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.

In Farber, the employer eliminated regional manager roles and offered the employee a demoted position with no guaranteed salary; the employee’s responsibilities were drastically cut, resulting in a considerable loss of status and prestige. The Supreme Court found this to be constructive dismissal, emphasizing that loss of status, compensation structure, and prestige can fundamentally alter the employment contract.

Restructuring often involves:

• Elimination of roles
• Demotions or changes in responsibility
• Consolidation of different roles
• Changing of the report chain or relationship
• Compensation adjustments
• Changes to reporting structures
• Relocation or return‑to‑office directives

These can all lead to a constructive dismissal claims.

As case law continues to evolve, new grounds keep emerging to sustain a constructive dismissal claim.

Restructuring Triggers Constructive Dismissal claims.

A constructive dismissal claim can be triggered easily during restructuring.

In a recent decision, Timothy Comeau v. Valcom Consulting Ltd., 2025 NBKB 253, the judge found that the employer constructively dismissed an employee by requiring him to accept a termination clause that limited his entitlements to the minimums under New Brunswick’s ESA. Had the employee signed the new agreement, the termination clause would have capped his severance at the New Brunswick ESA maximum of just 8 weeks, a fraction of the 10-month common-law notice period ultimately awarded by the Court.  Given that rolling out new employment agreements is a standard part of many restructurings, employers must ensure these transitions are handled with clear communications and proper procedures than forcing a take-it-or-leave-it ultimatum.

Return‑to‑Office Mandates: A Growing Litigation Risk

Return-to-office requirements have become one of the biggest constructive dismissal challenges in recent years. If remote work is an integral part of an employment contract, expressively or even impliedly, a return-to-office mandate may lead to a successful constructive dismissal claim.

In Nickles v 628810 Alberta Ltd., 2025 ABKB 212 (“Nickles”),  the employee had primarily worked remotely for 37 years. The employer recalled employees back to the office and required the employees to work in the office for 2.5 days per week, with the possibility of more in the future. The employee rejected the offer. The employer argued that the employee should have accepted the offer.

The Court found that the employer constructively dismissed the employee by requiring her to return to the office for 2.5 days a week. The Court also rejected the employer’s argument that the employee’s refusal to accept the offer amounted to a failure to mitigate the loss, and it found that the employee was not expected to accept it.  Given the unilateral change to a fundamental term of her work for 37 years, the Court held that the employee was entitled to wrongful dismissal damages.

How Employers Can Restructure Without Triggering Constructive Dismissal Litigation

1. Review employment contracts to ensure they are well-drafted and enforceable

Express terms matter. Well-drafted contracts reserve the right to:

• Change job duties
• Modify work location
• Implement layoffs
• Change remote working arrangements

If these terms are clearly drafted and enforceable, they reduce the risk of constructive dismissal claims.

However, courts will also consider implied terms arising from long-standing practice, such as remote work, as shown in Nickles.

Equally important, if employment contracts have well-drafted, enforceable termination clauses, it will reduce termination entitlements, thereby reducing the appeal of an employee making a claim for constructive dismissal. In Moore v. Apollo Health & Beauty Care, 2017 ONCA 383, the Ontario Court of Appeal confirmed that a well-drafted termination clause could limit an employee’s termination entitlement to the statutory minimum, even in the case of constructive dismissal. However, as mentioned above, employers should ensure a new contract is presented to employees in a proper way.

2. Provide working notice or consideration

If a fundamental change is unavoidable:

• Provide adequate working notice of the intended change; or
• Offer consideration (e.g., salary increase, retention bonus, enhanced severance entitlement) in exchange for accepting the change

Provide sufficient working notice of the intended change

We usually suggest that employers take two steps. First, ask employees whether they will accept the new terms. If they refuse to do so, provide sufficient working notice of termination, informing them that their employment will end at the end of the working notice period, unless they accept the new contract. This will reduce the likelihood of litigation. However, the employer must be prepared to accept that they will lose the employee if their new contract is not accepted or allow the employee to continue their employment on the original terms.

Offer consideration

Alternately, offer valid, fresh consideration that has some value to existing employees to encourage them to accept changed terms in a contract. Obviously, the more value you offer, the more appealing it would be for the employee to accept.  While courts will not assess the adequacy of the consideration offered, and courts will generally inquire into whether there was valid consideration (merely promising to continue the employment of an employee is not valid consideration for signing a new employment contract), the enforceability of the new contract may be jeopardized if the consideration is so de minimus that it cannot be said to have value for the employee in the circumstances.

3. Good faith negotiation

Employers should always consider negotiating with their employees to find a mutually acceptable path forward.

4. Seek genuine, documented consent

Silence, short‑term compliance, or even a signature on a paper does not necessarily equal informed consent from employees.

An informed and enforceable consent from the employee requires:

• Clear disclosure of proposed changes
• Opportunity to seek legal advice
• Unequivocal acceptance
• Consideration to support the new bargain.

As such, employers should always bring the important changes in a new contract to the employee’s attention, giving them time to seek legal advice, and support the change with fresh consideration.

Final Thoughts

The potential for constructive dismissal claims may be unavoidable during restructuring, but the risk of such litigation can be reduced. Employers who plan restructurings carefully, communicate transparently, set boundaries, and proactively or pre-emptively address any potential constructive dismissal claims are far less likely to face costly disputes.

As restructuring and return‑to‑office strategies continue to evolve, legal risk should be assessed upfront – not after the resignation letter arrives.

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Our employment and labour team regularly advises employers on lawful restructuring, return‑to‑office policies, and risk mitigation strategies tailored to Canadian workplaces.