Thursday, September 12, 2013

Chevalier v. Active Tire - Appeal Dismissed

I increasingly think that this case is a tragic consequence of the bizarre state of constructive dismissal law.

I've posted about it a couple of times before - first after the trial decision in August 2012, in an entry entitled "Can Your Employer Unfire You", and again after the costs decision, where the employee was ordered to pay $50,000 to the employer.

In a nutshell:  Chevalier was a manager with 33 years of service, but after a change in ownership began to have difficulty with his new employer - he was put to new duties and new expectations, and wasn't taking well to the change.  It's not an uncommon situation...until management decided to impose a "lay off".  (I presume it was purportedly a temporary layoff, without a contractual entitlement to do so.)

Chevalier quickly obtained legal advice, and commenced an action for constructive dismissal.

Upon receiving the statement of claim - and this is where the facts become more unusual - the employer offered him his job back.  He declined.

So the entire trial turned on whether or not it was reasonable for Chevalier to have declined.  He was definitely constructively dismissed, and definitely entitled to significant damages...subject to the duty to mitigate.  And if it was unreasonable for him to decline the job, that's a failure to mitigate, disentitling him to damages.

The trial judge concluded that the actions Active Tire had taken, up to the purported layoff, were basically within its rights, that Chevalier's perception that they were trying to "make his life miserable" was a distorted perception, and that had he returned to work he would not have been subject to an environment of hostility or humiliation.  Accordingly, it was unreasonable for him not to return.  His claim was dismissed, and he was ordered to pay $50,000 in costs.

The Appeal

The Court of Appeal just released a short endorsement dismissing his appeal.  Essentially, they held that the trial judge's findings of fact were supported on the record, and therefore there was no basis to interfere with the conclusion that it was unreasonable for Chevalier to decline the employer's offer.

He was ordered to pay another $7,500 in costs.

Constructive Dismissal and the Obligation to Mitigate

As I have said, I think the trial judge's decision is fairly consistent with the existing case law.  But I'm fairly critical of the existing doctrine.  To me, it seems to be fairly absurd in most cases that an employee can be constructively dismissed, and yet be expected to stay in the position nonetheless.  The standard for constructive dismissal is, in principle, similar to the standard for the obligation to mitigate:  An employee whose terms of employment are fundamentally and unilaterally changed can consider himself to be constructively dismissed; the duty to mitigate requires an employee to seek and accept similar employment.

The standard for mitigation, outside of these 'employment with the same employer' cases, has traditionally been very employee-friendly, giving the employee a fair bit of latitude in how to conduct a job search and how to assess which jobs are acceptable.  A look at the general mitigation jurisprudence would suggest that the court is looking merely for a good faith job-search, and that so long as the employee isn't sitting on the couch all day, or going on extended vacations, or doing something else that seems inherently unreasonable as an effort toward earning replacement income...that's okay.  (In fact, for a long-term employee whose skills aren't in great demand, there's sometimes a pretty good rationale for going back to school to update skills.)

In the employment-with-the-same-employer cases - mostly constructive dismissal cases, but not always - the standard seems to be much higher:  The Courts will find that a failure to continue employment with the same employer is unreasonable unless the employee can establish that the working environment would be hostile.  The analysis of the terms and conditions of employment, which would ordinarily be seen in a mitigation analysis, is largely absent.  Instead of a global analysis of the reasonableness of the employee's mitigation efforts altogether, the court narrowly focuses in on the reasonableness of a singular decision.

(By contrast, consider the following scenario:  I am dismissed from a job where I make $100,000 per year, and I am entitled to a 12-month notice period.  I am unemployed for 6 months, before I receive two job offers.  Job "A" pays $100,000, but requires longer hours, a longer commute, and more travel.  Job "B" has reasonable hours, but only pays $90,000.  As a young professional without a family, I might well opt for Job "A", but it is not at all difficult to see why many people would take the pay cut to not be separated from their families.  If I take Job "B" instead of Job "A", am I still entitled to be topped up for the extra $5,000 through the remaining 6 months of the notice period?

I would argue that the tests - wherever they ought to sit - should be consistent; that where a change to employment is sufficient to generate a constructive dismissal, that should, by virtue of the change, have the prima facie result that you are not obligated to accept the job in mitigation.  Likewise, if a change is sufficiently minor that it would be a job you would be required to take in mitigation, the change should not be adequate to generate a constructive dismissal.

But the "temporary layoff" cases are a slightly different class of constructive dismissal, because they look a lot more like actual termination cases.  (If you're put on a temporary layoff, which the employer is not entitled to do, is it necessary to actually resign in the face of it?  What would the point be?  You're not being paid; you're not required to go into work.)  This, functionally, is more similar to the Evans v. Teamsters case, where there was an actual termination followed by an offer of replacement employment.

Why is Mr. Chevalier so sympathetic?

As I said above, I think the case is a tragedy.  Even accepting all of the trial judge's findings of fact - that the employer wasn't trying to drive him out; their discipline was legitimate and sincerely intended to correct his performance; the temporary layoff was sincerely for purely economic reasons; there wouldn't have been an atmosphere of hostility had Mr. Chevalier returned; etc. - we're still left with the conclusion that Mr. Chevalier felt that this temporary layoff, which breached his contract, was simply an extension of other actions intended to drive him out.

So he would have seen their offer of re-employment as saying, "Oops, we crossed the line of clearly inappropriate conduct, so we take it back, because we want to merely skirt that line until you get so fed up that you quit."  Of course he declined.

And regardless of the sincerity of the employer's intentions, it's hard to say that the perception was unreasonable.  A temporary layoff says, at minimum, that they don't need you performing your duties, and that you're first on the chopping block.  Combined with prior discipline and other changes to his duties, the ultimate message that any reasonable person would take is this:  "You don't fit in this organization."  And the re-offer, after being served with a statement of claim, would appear as nothing more than an attempt to evade liability.

The fact is unavoidable that the only reason they recalled him to work was that they learned that they were not legally entitled to lay him off in the first place.  Translation: "We would lay you off if we could, but we can't."  It's hard not to be demeaned by that.

I would argue that the trial judge put too much emphasis on the employer's reasons for engaging in its various actions prior to the layoff:  The question, ultimately, is not whether or not they were entitled to (for example) discipline him.  The question, ultimately, is whether or not an employee's duty to mitigate requires him to take a position where he already (for example) has a disciplinary record.   Active Tire was acting within their rights, yes, but the bottom line is that the relationship was already rocky, and that is important context in evaluating the reasonableness of his decision to turn down their offer.

And the trial judge went so far to acknowledge that "it may well be that it was beyond his capacity" to follow the procedures set out by the new owners..."However, as set out in Mr. Chevalier's employment agreement, it was a term of his employment that he follow those procedures."  And that is where I would respectfully suggest the trial judge goes significantly wrong.  At the relevant time, being when the offer of re-employment was made, Mr. Chevalier did not have an employment agreement.  He was being offered an employment agreement, including terms with which the trial judge acknowledges Mr. Chevalier may not have been able to comply.  It seems absurd to suggest that Mr. Chevalier was obligated to accept a position which included requirements that he couldn't satisfy.

Not to mention the fact that they were already in litigation.  There's a debate among some employment lawyers:  Can lawyers save an employment relationship?  Or, when lawyers get involved, does that signal that the employment relationship is on death row?

The trial judge considered this to be relevant, but not determinative.  The Court of Appeal characterized this conclusion as a finding of fact, resistant to appellate review.  Respectfully, I find this troubling.  It's straightforwardly a statement of pure law, and while it's likely correct, I can't help but feel that the Court of Appeal is applying a bit too much deference in employment law cases.  (Not just in this case, either:  See my comments regarding the Bennett v. Cunningham case, too.)  Whether or not the reasonable person would have turned down Active Tire's offer is not a purely factual issue: The Supreme Court in Evans v. Teamsters expressly held that this question is one of mixed fact and law, and is subject to appellate intervention in the appropriate case (as it was in Evans), without needing to supplant the trial judge's assessment of credibility or the individual underlying facts.

Ripe for SCC Intervention

I was troubled by the Evans decision when it came out, for broader concerns about contractual relations:  Termination without notice, or constructive dismissal, is a breach of contract.  Lawyers and sophisticated businesspeople may not generally consider breaches to be morally bad, or worthy of punishment, but most people don't like it when their contracts are breached, for a couple of reasons:  (1) People like to be able to rely on another person's word.  They think that if you've promised to do something, they should be able to expect you to do it.  For most people, having to sue on a breach of contract will fall squarely into the realm of "Fool me once shame on you, fool me twice shame on me", or "Once bitten, twice shy". (2) Legal fees, for most people, are not just the cost of doing business.

But even operating within the Evans framework, the doctrine has gone way too far, with a case like Chevalier.  There is some debate over whether or not employment with the same employer is limited to the 'rare' case.  The majority chose not to characterize it in that way, instead conceptually streamlining mitigation in wrongful dismissal and constructive dismissal cases, and describing the test for mitigation in 'employment with the same employer' cases as turning on the absence of an atmosphere of hostility, embarrassment, or humiliation, including consideration of the nature and conditions of employment, and of non-tangible elements:  Work atmosphere, stigma, loss of dignity.

However, as in the trial decision in Chevalier, the courts seem not to consider the impact of the termination (or constructive dismissal) itself on the work environment, often not even mentioning stigma or dignity, and instead find failure to mitigate in the absence of evidence of an objectively hostile working environment.  Which, in my humble opinion, is a failure to take into account the multi-factored and contextual analysis endorsed by the Supreme Court, and often amounts to a reversal of the onus as well.

I don't really expect this case to make it to the Supreme Court, but I think there's a real need for the SCC to refine the doctrine, and provide guidance regarding the obligation of employees in these scenarios.  Because you can rest assured that we will see a lot more of them, as lawyers recommend that employers follow Active Tire's lead.

Here's an it food for thought

Imagine you make $100,000 per year, and your company is struggling financially, and dismisses you for economic reasons.  Assume that you are entitled to a 12-month notice period.  You search for a new job for 6 months, and then...
Scenario 1:  You receive a job offer from Company "A".  They are offering $100,000 per annum, but the position requires longer hours and more travel than you are used to, keeping you away from your spouse and small children more than you would like.  At the same time you receive a second offer from Company "B", which only pays $90,000 per annum, but entails time commitments more in line with what you are used to.  As well, Company "B" is a growing company in a promising market, with great long-term advancement potential.  Had you only received (and accepted) the offer from Company "B", you would straightforwardly have continuing entitlements against your old employer through the remainder of the notice period (i.e., to be topped up).  However, if you take Company "B"s offer and decline Company "A"s, have you failed to mitigate?
Scenario 2:  You receive the above offer from Company "A", and no other offer at the same time.  If you decline it, have you failed to mitigate?  Does the analysis differ from Scenario 1?  Should it?
Scenario 3:  You receive the above offer from Company "B", and also an offer from Company "C", offering $100,000 per annum, for a very similar job to your old employer, but it's only a 6-month contract.  By taking Company "B"s offer, have you failed to mitigate?
Scenario 4:  You receive only the 6-month contract offer from Company "C".  You decide to continue searching for something permanent.  Is this a failure to mitigate?
Scenario 5:  Your old employer, now aware that it has to compensate you through the reasonable notice period, offers you a six-month contract on the same terms and conditions as before.  At the same time, you receive the above offer from Company "B", which is a permanent position, with a growing company in a promising market.  By declining your old employer's offer and accepting the offer from Company "B", have you failed to mitigate?
Scenario 6:  Your old employer offers you a six-month contract on the same terms and conditions as before.  You decide to keep searching for a permanent job instead.  Have you failed to mitigate?

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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