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Employers beware: Workplace harassment can lead to constructive dismissal claim

The Ontario Divisional Court has determined that employees are able to sue their employers for constructive dismissal and associated damages, even in circumstances where the facts underlying the dismissal are connected to a workplace injury governed and compensated under the Workplace Safety and Insurance Act.

What is constructive dismissal?

Employers must understand exactly what is meant by “constructive dismissal,” as well as when it can be claimed.

A constructive dismissal occurs when an employer engages in conduct demonstrating an intention to no longer be bound by the employment contract with an employee.

For example, constructive dismissal can be found in cases where an employer treats an employee in a way that makes their continued employment objectively intolerable.

Furthermore, employees can bring claims for constructive dismissal when they are subjected to workplace harassment. Similarly, an employer who participates in creating a hostile work environment can also be exposed to a constructive dismissal claim. This is what happened in a recent Ontario case which has employers re-thinking the relationship between their actions and workplace safety.

Overview of recent Ontario case

In Morningstar v WSIAT, the applicant sought review of two Workplace Safety and Insurance Appeals Tribunal (WSIAT) decisions, which barred her from suing her former employer for constructive dismissal because her claim was connected to workplace harassment allegations.

The applicant in question was harassed by her colleagues in a number of humiliating ways, while her employer demonstrated indifference, as well as a lack of action and openness relating to workplace investigations. Following a leave of absence, the applicant refused to return to work and suggested that she had been constructively dismissed because her employer did not do enough to provide a safe work environment.

While the Act provides coverage for chronic or traumatic mental stress, this is what ultimately caused the WSIAT to conclude that her claim for constructive dismissal should be barred.

The ‘Historic Trade-Off’ and brief review of the WSIAT’s decisions

To understand why the WSIAT barred the applicant’s claim against her former employer, one must understand the “historic trade-off” at play when dealing with the Act. The first part of the trade-off recognizes that workers are entitled to insurance benefits upon demonstrating a work-related injury or disease under the Act.

In exchange for these insurance benefits, employers are protected from lawsuits connected to work-related injuries and illnesses because they pay into the accident insurance fund. In other words, employees who experience such workplace injuries should be seeking compensation under the Workplace Safety and Insurance Act, not from their employer.

In its decision, the WSIAT ultimately determined that the applicant’s constructive dismissal claim, and all associated damages, were directly linked with the allegations of workplace harassment and bullying, her employer’s problematic response, and the mental stress that these circumstances created for her. Stated differently, the underlying cause of action was “inextricably linked” to the harassment she experienced in the workplace, meaning that the Act was designed to compensate her, not her employer. Thus, the WSIAT concluded that the applicant was statute-barred from suing her employer. For similar reasons, a request for reconsideration by the WSIAT was denied.

The Ontario Divisional Court’s overturning of the WSIAT decisions

On review, the Ontario Divisional Court determined that the WSIAT’s decisions were unreasonable, and thus overturned them.

The Ontario court found that it would be unreasonable to bar constructive dismissal claims simply because the facts underlying the claim are the same as those supporting a personal injury claim. To do so would be inconsistent with Canadian law, which allows different causes of action to be supported by the same sets of facts.

However, the court also suggested that the above does not apply to individuals who use constructive dismissal simply as a vehicle to improperly side-step the Act or disguise claims for their own benefit. As there was no evidence that Morningstar did so, this caveat did not apply in her case.

As a consequence, the Court found that the applicant’s constructive dismissal claim, complete with the associated aggravated, moral, and punitive damages, should be allowed to proceed.

The Bottom Line for Employers

The Morningstar case demonstrates that employers can be found to have constructively dismissed employees and be liable for damages, even in cases where the worker has a compensable claim under the Workplace Safety and Insurance Act for the same occurrence or situation. In these cases, employers are not off the hook simply because an employee’s claim also makes them eligible for insurance benefits under workplace safety legislation.

Accordingly, employers should obtain expert legal advice if they have any questions or concerns about a WSIB related incident in the workplace, particularly where the risk of constructive dismissal exists.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.