What Is Constructive Dismissal, and How Do You Run Your Business Without Triggering It

Constructive dismissal arises when an employer makes a significant change to an employee’s terms of employment without their consent. Even where the employee hasn’t been expressly terminated, the law may treat the change as a termination if it fundamentally alters the employment relationship. 

Common examples include: 

• Reductions in compensation; 

• Changes to job duties or reporting structure; 

• Relocation or changes to work location (including return-to-office mandates); or  

• Demotions or changes in status. 
  
  

For employers, the challenge is that businesses need to evolve. Roles change, structures shift, and operational decisions need to be made. The legal risk arises when those changes cross the line from reasonable management decisions into fundamental changes to employment terms. 

There isn’t a bright-line rule, but the analysis often turns on the degree of change and whether the employee agreed (explicitly or implicitly). 

So how do employers balance this? 

A few practical considerations: 

• Assess whether the change impacts a core term of employment; 

• Consider whether the employment agreement allows for flexibility or change; 

• Provide advance notice where possible; 

• Communicate the business rationale clearly; and  

• Consider obtaining consent to the change.  
  
  

In some cases, employers may also consider providing working notice of the change (effectively treating it as a termination and offering continued employment under new terms after the notice period). 

Constructive dismissal risk doesn’t mean change is off the table. It does mean that how a change is implemented really matters. A thoughtful, transparent approach can help reduce risk while still allowing the business to move forward. 

The right approach to change can protect both your business and your workplace relationships. If you’re unsure how a proposed change may impact your obligations as an employer, we’re here to help.