Constructive Dismissals in Canada: How to Correctly Navigate Restructuring and Layoffs

As businesses adapt to the evolving demands of the 2026 labour market, managing economic shifts, technological integration, and restructuring, employers are frequently looking for ways to control costs. This often leads to considerations of reducing employee work hours, altering compensation, or implementing temporary layoffs. 

As you weigh your operational options, understanding the interplay between provincial legislation and Canadian common law is paramount. Executing changes improperly can trigger a costly legal dispute known as a constructive dismissal claim. 

What is constructive dismissal? 

Constructive dismissal occurs when an employer does not directly terminate an employee but unilaterally changes a fundamental term of the employment contract without the employee’s consent or a contractual right to do so. In the eyes of the law, the employer has repudiated the contract, allowing the employee to treat their employment as terminated. 

Major triggers include: 

• Significantly reducing compensation or work hours. 
• Demotions or drastic alterations of core duties. 
• Relocating the employee to a geographically distant work location. 
• Creating a toxic or intolerable work environment (e.g., failing to address harassment). 

Because constructive dismissal is legally treated as a termination, the employer becomes liable for the employee’s full severance entitlements under both employment standards legislation and, crucially, the common law. 

The “reasonable time” window: When does an employee accept the change? 

If an employer imposes a unilateral change, the employee must express their lack of consent within a “reasonable time”. If they continue working under the new conditions for too long without protesting, the law may deem them to have condoned (accepted) the change. 

There is no strict, universal statutory deadline across Canada for this. While recent jurisprudence, such as the Alberta Court of Appeal decision in Kosteckyj v. Paramount Resources Ltd., highlights that highly educated, well-resourced professionals may be expected to assess their options and object quickly (sometimes within weeks), this is highly fact specific. Courts assess “reasonable time” based on the employee's vulnerability, tenure, age, and access to legal counsel. Employers should never assume that a few weeks of silence equals legal consent. 

How to mitigate constructive dismissal risks 

1. Audit and revise your employment contracts  

Before altering wages, hours, or duties, review your employment agreements. You cannot unilaterally alter fundamental terms without a contractual right. If you need to change the terms, seek the employee's written consent. To make this amended contract legally binding, you must provide the employee with "fresh consideration"—a new benefit they were not already entitled to, such as a signing bonus, a wage increase, or additional vacation time. 

2. Understand the “statute vs. common law” layoff trap  

The most common mistake Canadian employers make is assuming they have a legal right to temporarily lay off staff because it is outlined in provincial employment standards legislation. 

The legal reality: At common law, any temporary layoff is automatically a constructive dismissal unless your employment contract explicitly contains a temporary layoff clause, or the employee agrees to it. 

If you do have the contractual right to lay off an employee, you must then ensure the layoff does not exceed the statutory limits of your specific province, otherwise, it becomes a permanent termination: 

• Alberta: The maximum duration is 90 days within a 120-consecutive-day period. 
• British Columbia: The permissible period is 13 weeks within any given 20-week period. 
• Ontario: A temporary layoff can last up to 13 weeks in a 20-consecutive-week period. It can be extended to 35 weeks within a 52-week period only if specific conditions are met (e.g., the employer continues to pay into the employee's benefit plans). 

Under the new provisions introduced by the Working for Workers Seven Act 2025, Ontario employers and their non-unionized employees can agree to an extended temporary layoff that lasts 35 or more weeks within a consecutive 52-week period, provided the layoff does not exceed 52 weeks within a consecutive 78-week period. 

However, this is not an automatic employer right. To utilize this extended period without triggering a statutory termination, an employer must clear several specific administrative requirements: 

1. Irrevocable written agreement: The employer and employee must enter into a formal, written agreement. 
2. Firm recall date: Before signing, the employer must provide the employee with a written statement detailing the latest intended recall date. 
3. Statutory warning: The employer must explicitly notify the employee in writing that, once signed, the agreement is legally irrevocable. 
4. Director approval: Crucially, the agreement is invalid without formal approval from the provincial Director of Employment Standards. 
5. Record keeping: The employer must retain copies of the extended layoff agreement for three years after the Director's approval expires. 

• Manitoba: Employers don’t have to provide notice to employees that they are being laid off. But if a layoff is longer than eight weeks in a 16-week period, it is deemed a termination and notice of termination or pay in lieu of notice is required. 
• Saskatchewan: A layoff is defined as the temporary interruption of the services of an employee for a period longer than six consecutive work days. If an employer knows they have to lay an employee off work for more than six consecutive work days, they must provide the worker with notice of layoff or pay in-lieu in the same way they must provide notice of termination or pay in-lieu. 

After the employee is provided with the applicable notice of layoff under the Saskatchewan Employment Act (SEA), they can be off work for an indefinite amount of time before they are recalled back to their position. 

Please note that the legislation alone can’t be a buffer from constructive dismissal claims. Unless the job contract gives you the right to temporarily layoff an employee, you are never completely protected. 

3. Communicate with transparency and objectivity  

If operational changes are necessary, communicate the business rationale clearly to your staff. Employees who understand the financial realities are more likely to consent to temporary reductions or mutually beneficial solutions. Furthermore, if you are selecting specific roles for restructuring, ensure your criteria are purely objective, documented, and entirely free from discriminatory bias to avoid human rights complaints. 

Do you have questions about constructive dismissals? 

Peninsula’s experts can help you update employment contracts and implement best practices to prevent constructive dismissal claims. We can also assist with any HR, health & safety, or employee management advice that you may need. To learn more about how our services can benefit your business, call an expert today at 1 (833) 247-3652.