Have I Constructively Dismissed an Employee by Putting Them on Unpaid Administrative Suspension?
A recent decision from the Ontario Court of Appeal confirmed that suspending an employee without pay (i.e. an “administrative suspension”), including while the employer conducts an investigation, can constitute constructive dismissal. The Court provided guidance on when and how employees can be placed on suspension during an employer’s investigation.
Filice v. Complex Services Inc. (2018 ONCA 625) involved a security shift supervisor at Fallsview and Niagara Casinos. In December of 2007, the Ontario Provincial Police informed Complex Services Inc. that it was investigating Mr. Filice for theft at his workplace. He was placed on an unpaid “investigative suspension” while the criminal investigation was ongoing.
In January of 2008, the Police charged Mr. Filice with multiple counts of theft under $5,000. The Alcohol and Gaming Commission of Ontario suspended his gaming registration at the same time. Ultimately, the theft charges were either dropped or dismissed, but the gaming registration remained suspended. Mr. Filice voluntarily surrendered his gaming registration, rather than attend a hearing before the AGCO.
Complex Services Inc. terminated Mr. Filice on the grounds that he could not work without his gaming registration, and his employment contract had been frustrated. It refused to pay him for the period of his administrative suspension, and relied on the terms of its employee handbook:
Investigative Suspension may be used as part of the coaching and counselling process to verify allegations of misconduct. During an investigation, the Associate may be prohibited from working. If a decision is made to separate the Associate’s employment, he or she may not be reimbursed for time spent on Investigative Suspension.
Decision of the Court
The Ontario Court of Appeal determined that the decision to suspend Mr. Filice without pay during the investigation was a “substantial change” to the essential terms of his employment contract. Mr. Felice had been constructively dismissed, and was entitled to payment in lieu of notice.
The Court helpfully reviewed the principles that should guide an employer considering placing an employee on administrative suspension:
- An employer has the power to suspend employees for administrative reasons. In Cabiakman v. Industrial Alliance Life Insurance Co. (2004 SCC 55) the Supreme Court of Canada confirmed that this power exists, so long as:
A. The suspension is necessary to protect a legitimate business interest;
B. The employer is acting in good faith and fairly; and,
C. The suspension must be for a relatively short time period and a fixed term.
- Administrative suspensions can only be unpaid in exceptional circumstances.
- In order to impose an administrative suspension without pay, an employer must prove:
A. That the suspension is justified;
B. That there is a basis in the employment contract or the employer’s policies for unpaid suspension; and,
C. That the decision to suspend without pay is reasonable and justified.
In Complex Services Inc., the Court of Appeal found that the employer did have a contractual right to suspend employees without pay in certain circumstances, but that it had not exercised that power reasonably in the case of Mr. Filice. At the outset of the suspension, it was not clear that any criminal charges would be laid andthe company did not have any other information to suggest misconduct. While suspending Mr. Filice for the course of the investigation was appropriate, withholding pay before any element of misconduct was established was not warranted. Therefore the Court found that Mr. Filice was constructively dismissed at that time.
Key Takeaways for an Employer
This decision reinforces that unpaid administrative suspensions are possible, but should be used with caution and only when there is a contractual or policy basis for doing so. If your company’s employment contracts or policies do not provide for unpaid suspension, then suspending an employee without pay will put you at risk of an allegation of constructive dismissal.
Even if a company’s policies specifically permit unpaid suspension, there is a risk of a constructive dismissal if an unpaid suspension is found to be unreasonable. In the case of Complex Services Inc., the employer jumped the gun and suspended Mr. Felice before it had established any misconduct, which was unreasonable.
Complex Services Inc. is a timely reminder that unpaid suspensions must be reasonable, administered fairly, and well documented.