WHAT IS CONSTRUCTIVE DISMISSAL?

If an employer alters a fundamental term or condition of employment,
 both employer and employee must proceed with caution.

In previous posts I have dealt with termination of employment in the context of where an employer explicitly intends to dismiss an employee. However, there are situations where an employer may not form an intention to dismiss an employee but, by its actions, is deemed at law to have done so. This is known as constructive dismissal.

According to the leading Supreme Court of Canada decision on constructive dismissal, Farber v. Royal Trust Co. [1]:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation [rejection] of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.

Note that the Supreme Court was referring to an “employment contract” in the broadest sense of the concept, as in the terms governing a particular employment relationship whether or not those terms are actually contained within a written contract. I will be using the same meaning of “contract” in this post.

What constitutes a “unilateral and fundamental change” depends on the terms of each employment contract, and, therefore, no hard and fast rules can be applied. The following is a non-exhaustive list of actions that an employer might take and which are frequently considered by the courts to be “unilateral and fundamental changes” giving rise to constructive dismissal depending upon the unique circumstances of each case:

1.                  Reduction in pay of 10% or more

2.                  Temporary layoff

3.                  Relocation

4.                  Demotion

5.                  Workplace bullying

6.                  Forced resignation

7.                  Unpaid suspension

8.                  Denial of benefits (if benefits were promised by the employer)

If an employee believes that he or she has been constructively dismissed then, according to the 2008 decision of the Ontario Court of Appeal in Wronko v. Western Inventory Service Ltd.[2], the employee has three options:

Firstly, the employee can condone the change through words or actions and, therefore, he or she relinquishes the right to sue the employer for damages for wrongful dismissal.

Secondly, the employee may clearly communicate to the employer that he or she rejects the change in the terms of employment. If the employer persists and makes the change anyway, then the employee may sue for damages and not return to work for the employer.

Thirdly, the employee may clearly communicate to the employer that he or she rejects the change and demand the enforcement of the original term or terms. The employer can respond by terminating the employee’s employment, but only after proper notice or pay in lieu of notice is provided, and then offer employment on fresh terms. Alternatively, if the employer allows the employee to continue to be employed then the employee can still insist that the employer is bound by the terms of the original contract until proper notice or pay in lieu of notice is provided to the employee.

In 2010, as a result of an Ontario decision called Russo v. Kerr Bros. Ltd.[3], a constructively dismissed employee was granted a fourth option: The employee can clearly communicate to the employer that he or she will not accept the unilateral change imposed by the employer but, instead of leaving the workplace, the employee may stay on the job while suing the employer for damages.

It is important to note that like all terminated employees, a constructively dismissed employee is obligated to mitigate his or her damages. In other words, the employee must make reasonable efforts to locate alternate employment. In fact, according to a 2008 decision of the Supreme Court of Canada in Evans v. Teamster Local Union No. 31 [4],

….in some circumstances it will be necessary for a dismissed employee to mitigate his or her damages by returning to work for the same employer. Assuming there are no barriers to re-employment….requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself….Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so "[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious".

In light of the Evans decision, a constructively dismissed employee must be cautious before exercising the second option described above.

Finally, there is a fifth option. However, it is not a good one. When faced with what the employee believes to be a constructive dismissal, an employee can simply resign. However, by doing so, the employee may be severely compromising any claim for damages against the employer.

Constructive dismissal is one of the more uncertain areas of employment law. An employer wishing to impose a unilateral change to an employee’s terms of employment would be wise to obtain legal advice before moving forward in order to minimize the chances of a successful claim by a disgruntled employee for damages for wrongful dismissal. Similarly, an employee who is faced with such a unilateral change needs to move quickly, with the assistance of a lawyer, in order to properly exercise one of the options available to him or her in the face of a possible constructive dismissal.
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[1] [1997] 1 S.C.R. 846, 145 D.L.R. (4^th) 1.

[2] 292 DLR (4^th) 58 (Ont. C. A.), leave to appeal to S.C.C. refused 295 D.L.R. (4^th)  vii.

[3] 2010 CarswellOnt 8373 (S.C.J.).

[4] [2008] 1 SCR 661, 292 DLR 4^th 577.

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WHAT IS JUST CAUSE?

When can an employee simply be shown the door?

My last post was about notice or pay lieu of reasonable notice, which employers must provide to employees if their employment is terminated without cause. However, what if there exists just cause for termination?

According to the common law, just cause may relieve an employer from having to provide an employee with notice or pay in lieu of notice of termination (however, earned wages, vacation pay and pension benefits may still be due and owing).

Canadian courts have referred to just cause as “the capital punishment crime of employment law"[1] and for good reason. In addition to being denied working notice or termination pay, an employee who has been dismissed for cause could:

• be denied Employment Insurance benefits, 
• find it difficult to become re-employed, and
• suffer a serious psychological blow, which, in some cases, can lead to medical problems.
  

Not surprisingly, the burden of proving just cause to the court's satisfaction falls on the employer’s shoulders.

Since Canada did away with actual capital punishment in the criminal law context long ago, it should come as no surprise that its civil courts will “sentence” employees to the employment law equivalent only in the most extreme circumstances. This area of the law is challenging for employers, especially because there are few hard and fast rules. Consider the following cases:

•       Poor performance, generally speaking, in absence of clear performance standards, a history of progressive discipline, written warnings and employer guidance and support will not constitute just cause. [2]
•        In considering whether a dismissal for just cause is warranted for reasons of dishonesty, the Supreme Court of Canada “favour[s] an analytical framework that examines each case on its own particular facts and circumstances."[3] Accordingly, while dishonesty in the form of intentional embezzlement of money would likely be considered just cause, this is not the case where an employee with a long and excellent performance record recklessly misrepresents his expenses. [4]
•       As for criminal behaviour outside the workplace, while purchasing small amounts of marijuana from a fellow employee at home might not constitute just cause[5], the situation may be different if an employee is criminally charged with possession of child pornography.[6]
•        An employer may wish to think twice before dismissing an employee with body odour -- even if employed as a fragrance demonstrator.[7]
•        Engaging in harassing and threatening behaviour with one’s co-workers and using foul language may not constitute just cause in certain circumstances.[8]
•        Even when an employer may be able to establish just cause according to the common law, that may not be enough to characterize an employer’s offending conduct as “wilful misconduct, disobedience or wilful neglect of duty” for the purposes of provincial minimum standards legislation such as Ontario’s Employment Standards Act. This occurred in a recent decision where a worker had been disciplined for taking extended breaks, arriving late, shoddy workmanship and where he had a careless attitude towards his misconduct despite numerous coaching sessions. The Court held that the employee should still receive his entitlements under the Act even if he is denied common law damages for wrongful dismissal.[9]

Employers and employees also need to be aware that there may be applicable human rights legislation and contractual considerations that can come into play.  These can further restrict an employer’s ability to terminate an employee for just cause.

Employers should take care not to unwittingly become the target of wrongful dismissal litigation should they improperly dismiss an employee for cause. Not only can the plaintiff employee potentially walk away with a judgment for lost wages and legal costs, where an employer unsuccessfully alleges just cause the employee may be awarded additional damages, such as for mental distress. This is not surprising when one considers the potential harm to an employee who is dismissed for cause.

Employers and employees require the assistance of experienced employment lawyers when navigating through the just cause minefield.  Employers should speak with counsel before firing an employee for alleged cause or even before disciplining him or her for perceived misconduct. Similarly, employees who are fired for cause, suspended, given warnings or even placed on performance improvement plans should quickly seek legal advice.

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[1] Echlin J.  as cited in Tong v. Home Depot of Canada Inc. (2004), 38 C.C.E.L. (3d) 59 (Ont. S.C.J.) at para. 1.

[2] Wood v. Canadian Marconi Co. (1995), 9 C.C.E.L. (2d) 174 (Ont. Div. Ct.) and Russell v. Molson Breweries (Ontario) Ltd. (1995), 8 C.C.E.L. (2d) 277 (Ont. Gen. Div.).

[3] Mc Kinley v. BC Tel (2001), 9 C.C.E.L. (3d) 167 (S.C.C.) at para. 57.

[4] Leitner v. Wyeth Canada, 2010 CarswellOnt 456 (S.C.J.).

[5] Rhodes v. Zehrmart Limited, [1986] O.J. No. 2631 rev’d [1986] O.J. No. 2631 (Div. Ct.).

[6] Kelly v. Linamar Corp., [2006] O.J. No. 4899 (S.C.J.).

[7] Bagnall v. Calvin Klein Cosmetics (Canada) Ltd. (1994), 5 C.C.E.L. (2d) 261.

[8] Poulos v. Toronto  & Region Conservation For The Living City, 2009 CarswellOnt 8989 (S.C.J.).

[9] Oosterbosch v. FAG Aerospace Inc., 2011 CarswellOnt 1702 (S.C.J.).

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WHAT IS REASONABLE NOTICE?

What are an employee's entilements when the proverbial axe falls?

As an employment lawyer I am often called upon to determine the appropriate amount of reasonable notice of termination of employment without cause* in a non-unionized workplace.

In other words, whether my client is an employee or employer, he or she wants to know how long one has to pay an employee who is fired.

Firstly, let's be clear about what reasonable notice is not:

With one important exception, discussed below, when dealing with workplaces under provincial, rather than federal, jurisdiction**, reasonable notice is not merely the provincial statutory minimum notice of termination (such as can be found in section 57 of Ontario's Employment Standards Act)***. Many employers and employees, when faced with this issue, simply contact the provincial Ministry of Labour to learn about the statutory minimum, but they mistakenly end the inquiry there. 

As well, contrary to popular belief, there is no rule that reasonable notice is always equal to one month per year worked.

Secondly, there is no one answer to the question "what is reasonable notice?". Each case turns on its own facts. According to Canadian common law, a Court will look at a number of factors in order to determine reasonable notice for a particular employee. Traditionally, the most important factors are length of service, age, the type of position, the level of salary, and the availability of alternate employment.

It is important to note, as well, that an employer can opt to provide working notice or pay in lieu of notice (and discharge the employee immediately) or a combination of the two. In all of these cases, the common law reasonable notice period during which an employee is to be paid his compensation is the same.

Furthermore, under the common law, a dismissed employee has a duty to mitigate. In other words, the employee must take reasonable steps to "cut her losses" by actively seeking suitable alternate employment during the common law reasonable notice period. Should a dismissed employee fail to mitigate, for example, by not looking for work, or should the employee find alternate employment during the reasonable notice period, the Court will reduce the amount otherwise due to the employee by the employer for failure to provide reasonable notice.

I mentioned above how there is an exception to provincial statutory minimums not being the final word when it comes to notice of termination. It is possible for the employee to "contract out" of his right to common law reasonable notice. This is easier said than done, however. Nevertheless, both employers and employees need to be aware of this possibility. Bear in mind though that one cannot legally contract out of the statutory minimum notice period.

If this is enough to make your head spin, then don't worry; you are not alone. The complexity of this area of the law proves why it is vital for employers to obtain proper legal advice prior to making critical decisions such as hiring and firing employees, and for employees to do the same before signing an employment contract, accepting a severance package or simply walking away without a severance package after being fired.
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*If an employee is dismissed with cause (also known as just cause), then she is not entitled to notice or pay in lieu of notice of termination (at common law or otherwise). Just cause will be the subject of another post. Needless to say, an employer would be wise to seek legal advice before purporting to terminate an employee for just cause because there can be serious consequences for both the employer and employee.

**Employees in a workplace under federal jurisdiction (such as banks, for example) are not subject to provincial employment statutes such as Ontario's Employment Standards Act. Instead, they are covered by the Canada Labour Code which prescribes its own "severance pay" requirements. Although common law reasonable notice is applicable to these workplaces, some non-unionized, non-managerial employees can avail themselves to the unjust dismissal scheme found in s. 240 of the Code. 

***In addition to minimum notice of termination, s. 64 of the Employment Standards Act (Ontario) also provides for additional "severance pay" for longer-term employees in certain situations. Like statutory minimum notice of termination, one cannot contract out of their statutory severance pay entitlement.