Managing change in the workplace: Constructive dismissal and the duty to mitigate

Last week’s Nova Scotia Court of Appeal’s decision in Halifax Herald Limited v. Clarke, is good news for employers. The court overturned the trial judge’s determinations that an employee had been constructively dismissed after he was transferred to a new sales position and had not failed to mitigate his damages by declining to stay at work in the new position.

The court held that the trial judge had committed three reversible errors by: (1) excluding relevant evidence of actual sales results; (2) misapplying the legal test for constructive dismissal; and (3) misapplying the legal test for mitigation. As a result, the court not only overturned the trial decision but dismissed the action outright. The former employee must now pay the Herald approximately $130,000, which includes trial and appeal costs.

This decision is good news for employers faced with restructuring their business to manage industry change and other developments. It brings improved clarity to the law of constructive dismissal and the duty to mitigate. The analysis must be objective and consider the evidence from the employer without unduly focusing on the employee’s subjective views. Moreover, a reduction in income — whether actual or anticipated — does not automatically remove the duty to mitigate by continuing in the position.

Halifax Herald Limited is a media company and, facing the decline in advertising and circulation revenues affecting the traditional print media industry, had been diversifying its lines of business into new areas.

The former employee was a long-service salesperson with the Herald who for many years had sold advertising space in newspapers. He was transferred by the Herald into a new sales position that would instead focus on two new lines of business targeted for growth. While the new position had the same base salary and benefits, compensation in both positions was primarily based on commissions.

The parties had different outlooks on the sales prospects for the new position, upon which the employee’s variable income would be based. The Herald was optimistic and the employee was pessimistic. The Herald offered a period of guaranteed income, which was increased following some discussions regarding the employee’s concerns. Rather than wait and see or stay under protest in order to mitigate his losses, the employee quit and sued for constructive dismissal, saying that his compensation had been unilaterally reduced.

Exclusion of the actual sales results

At trial, the Herald tried to lead evidence of actual sales figures from after the employee decided to leave to support its position that his income would not have gone down. The trial judge refused to allow the Herald to cross-examine the former employee on, or lead evidence through its own witnesses of, the actual sales on the basis that they were not relevant because they arose after the employee had quit and sued.

The Court of Appeal found that excluding this evidence was an error and that the actual sales figures were relevant. Although they were “after the fact” evidence, they were relevant to both constructive dismissal and mitigation. While the evidence was not known at the time that the former employee decided to leave and would not have been determinative of the issue, it was relevant to assessing the reasonableness of the former employee’s subjective beliefs that his income would be reduced in the new position, despite the Herald’s own expectations to the contrary. The evidence was also relevant to mitigation since, in her decision, the trial judge had made positive findings of fact that the former employee’s income would have declined had he remained.

The Court of Appeal held that this error alone would have been sufficient to order a new trial, but given its determinations on the other two issues, this wasn’t necessary.

Constructive dismissal: when is a unilateral change deemed a dismissal?

On the constructive dismissal issue, the court determined that the trial judge had failed to apply the correct legal standard for constructive dismissal to the uncontested facts established at trial. The trial judge found the unilateral change to the employee’s position constituted constructive dismissal because it affected his compensation and changed his duties and responsibilities. However, constructive dismissal requires not only a unilateral change, but an assessment of whether that change is so serious or substantial so as to demonstrate “an intention not to be bound by the employment contract.”

The court highlighted the uncontested evidence led by the Herald at trial and noted that the trial judge had not referred to any of it in her analysis but instead focused solely on the former employee’s subjective views. Viewed objectively, the Court of Appeal decided that the Herald had not shown an intention to no longer be bound by the employment contract and therefore had not constructively dismissed the former employee.

Mitigation: when can an employee quit and sue?

The Court of Appeal then considered the Herald’s third ground of appeal, which was that even if the former employee had been constructively dismissed, he had a duty to mitigate his damages by continuing in the new position (commonly known as “Evans mitigation,” following the Supreme Court of Canada’s decision in Evans v. Teamsters Local Union No. 31).

Here, the court found that the trial judge had failed to apply the correct legal standard and ignored plainly relevant evidence. The critical focus of the Evans mitigation analysis is that an employee should not be obligated to mitigate by working in “an atmosphere of hostility, embarrassment or humiliation.” The Herald’s evidence at trial was that it wanted to maintain the employment relationship with the employee, who was valued and well-liked. The trial judge expressly recognized the absence of acrimony in the workplace, but nonetheless focused solely on income reduction in finding that the former employee did not have a duty to stay in the role to mitigate his losses.

For more information see:

• Halifax Herald Limited v. Clarke, 2019 NSCA 31 (N.S. C.A.).

• Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (S.C.C.).