Option to keep working must be clear for dismissed workers

Faced with an ever-shifting business landscape, employers periodically find it necessary to reassign duties within the workplace. However, an employer-imposed alteration of duties carries with it a risk an employee may claim constructive dismissal. An Ontario employer recently learned that a failure to adhere to a technical legal requirement can lead to liability.

In earlier years, General Coach Canada was primarily engaged in the manufacture of travel trailers, fifth wheels, truck campers and motor homes at its plant in Hensall, Ont. However, as market demand shifted, focus narrowed to the production of park model homes and pre-fabricated cabins.

General Coach’s vice-president of operations, Kenneth Farwell, was a long-term employee with 38 years’ tenure. He had worked his way up the ranks, having started in an entry-level position. Unfortunately, Farwell lacked expertise and experience in General Coach’s new product lines — in contrast to his immediate subordinate, Wayne Meidinger, who was an expert.

With challenging economic times exacerbating matters, General Coach decided business imperatives mandated that Meidinger’s greater expertise be exploited by his assuming Farwell’s role. As a result, Farwell was offered the position of purchasing manager which he had held earlier, but with no change in salary from his vice-president position.

Shift in job leads to constructive dismissal claim

Farwell turned down General Coach’s proposal because of the position’s lower status and requirement that he report to an employee who previously reported to him. He launched a lawsuit claiming constructive dismissal.

At trial, the judge agreed with Farwell that the legal test for constructive dismissal had been satisfied. However, a finding of constructive dismissal did not automatically mean Farwell was entitled to a legal remedy. Farwell had a duty to mitigate his losses, which in this case, might have meant taking the position of purchasing manager throughout the period determined to be of reasonable notice.

The mitigation evidence before the court was that Farwell had made efforts in a poor economy to find other employment but was not successful for many months. General Coach argued that as part of his legal duty to mitigate his damages, Farwell was obliged to accept the purchasing manager position; the salary and working conditions would have been almost the same as for his previous position, the only difference being a likely reduction in bonus. Giving effect to this argument would have eliminated Farwell’s damages. The trial judge rejected General Coach’s argument because, in the judge’s view, it would have been “humiliating and embarrassing … in (Farwell’s) mind” to be required to work in a lower position and report to his previous subordinate.”

General Coach appealed to the Ontario Court of Appeal on the basis, claiming the trial judge erred in applying a subjective test as to what was “in Mr. Farwell’s mind,” rather than applying the legally required objective test.

Employer should have followed up with offer

The Court of Appeal declined to consider whether the trial judge had applied the correct legal test, focusing instead on what it saw as a fatal omission on the part of General Coach once Farwell had turned down its offer. According to the Court of Appeal, after learning of Farwell’s constructive dismissal claim, General Coach should have followed up with him to advise him that the offer of becoming purchasing manager remained open as a means of mitigation. By not having done that, Farwell’s failure to accept the new position could be not seen as a failure to mitigate.

“(General Coach’s) mitigation argument presupposes that the employer has offered the employee a chance to mitigate damages by returning to work. To trigger this form of mitigation duty, (General Coach) was therefore obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he refused to accept the position of purchasing manager and told (General Coach) that he was treating the reorganization as constructive and wrongful dismissal. There is no evidence that (General Coach) extended such an offer to Farwell. Accordingly, Farwell did not breach his mitigation obligation by not returning to work,” said the appeal court.

Tips for employers

Making changes to an employee’s position is a tricky business, with many pitfalls for even the best intentioned employer. To minimize the risk of a successful constructive dismissal claim, employers are reminded of the following important points:

Constructive dismissal is not just a matter of compensation. If a restructuring results in a reduction of an employee’s status and prestige, the employee may have a valid constructive dismissal claim, even if income is unchanged.

The obligation to mitigate by remaining with the terminating employer only arises if there is a clear opportunity to mitigate. If an employee rejects continued employment, and proceeds to assert a constructive dismissal claim, an employer must offer an opportunity for re-employment to invoke an employee’s duty to mitigate vis-à-vis that offer.

The obligation to mitigate by remaining with the terminating employer is assessed on an objective, “reasonable person” standard. Even if it is suspected that an employee will not accept a new role, the court will apply an objective, “reasonable person” test, considering such factors as how the employee was treated on termination, his history with the company, and how and why the new role was created. If an employer is able to show a “reasonable person” would have returned to the employer, then the employee could be found to have failed to mitigate.

Legal advice usually required. Because of the complexity and tact required in this legal area, it is highly advisable for an employer to seek out legal advice before taking steps involving substantial changes to an employee’s position. Once a constructive dismissal has been commenced it is often difficult to turn back the clock.

For more information see:

• Farwell v. Citair Inc, 2014 CarswellOnt 2573 (Ont. C.A.).