Friday, December 20, 2013

Damaso v. PSI: The Perfect Storm of Constructive Dismissal

There's a delightfully convoluted judgment from the Superior Court this week, decided - coincidentally - by the same judge who decided Loyst v. Chatten's Better Hearing Service, the unsuccessful appeal from which I just posted about.

This new case is Damaso v. PSI Peripheral Solutions Inc., and though the fact-pattern is highly complex and nuanced, the judge cut through the complexity with reasons of exceptional clarity and precision.

The Facts

Mr. Damaso was hired by PSI in May 1999 as a "Field Service Technician and Computer Technician".  It appears that he did his job satisfactorily, because he continued with the company for 12 years, getting raises except during times of financial hardship for the company, and taking on new duties over time.

In 2005, he assumed additional duties, performing software support for a new division of the company.

In 2008, his income hit its top level, at $55,000 per year, and he didn't get further raises because of difficulties experienced by PSI (2008, of course, marking a major economic downturn).  In early 2009, PSI added to Damaso's duties by making him IT Administrator, and purchasing a new software system, from a company called ERP, to provide a common software infrastructure across all departments.  For the purpose of ERP support and implementation, Damaso was named "Project Champion" - nope, can't make this stuff up.

By 2010, Damaso was expressing concerns about his workload and the fact that he hadn't received a raise since 2008.  Eventually, in early 2011, after putting him off for some time, PSI's owners met with him on a series of occasions to discuss these concerns.  They took the position that the duties he was now performing were a 'natural extension' of his original position.

Then PSI scheduled another meeting for April 4, 2011.  In this meeting, a number of things occurred:  Firstly, PSI said that it had been reviewing its security footage and discovered that Damaso was allegedly cutting out of work half an hour early regularly.  Secondly, Damaso insisted that his IT functions be reassigned after April 15, 2011, because he was not able to continue with them.  Thirdly, the owner (Mr. Panunto) indicated that there would be no raise.

Subsequently, PSI retained an independent contractor to take over IT functions, who changed the system passwords so that Damaso could no longer access them independently.

Then, on May 13, 2011, they gave Damaso 12 months' working notice of termination, in which notice they told him that they expected him to continue to perform all the duties he had taken on, set out his hours of work with great specificity, etc.

Damaso then took off on disability leave, and then wrote in September taking the position that he had been constructively dismissed.

The Issues

The court identified three issues:

(1)  Was Damaso constructively dismissed, or did he repudiate his contract with PSI?

(2)  Did Damaso fail to mitigate his damages?

(3)  What are Damaso's damages?

Constructive Dismissal

The judge concluded that Damaso was constructively dismissed, and looked in a very nuanced and detailed way to the fact pattern to demonstrate how.  While he understood the reasoning for expanding Damaso's duties, he felt that, as of Spring 2011, PSI lacked justification for continuing to insist that Damaso perform the expanded duties.

PSI took the position that, if the additional duties constituted a constructive dismissal, Damaso had acquiesced to the new terms by performing the additional duties for years.  This is a cogent argument, but for the fact that he started objecting to the workload shortly after the most recent added duties were piled on.

Moreover, the escalation that occurred in 2011, in the face of legitimate workload objections by Damaso, were a major consideration.  The fact that he could no longer access the systems on his own suggested that the workload would be even more onerous.  This is probably the keystone which will make the decision very difficult to appeal.  But it couples with an atmosphere of hostility - a Shah-type constructive dismissal - to generate a very sympathetic plaintiff.  PSI took a "very hard line" with Damaso, and the judge concluded that the working notice wasn't a good faith attempt to give working notice.

There are a few things that PSI did wrong:  Firstly, management overtly lied to him when putting off his raise requests, telling him in 2010 that they would discuss it with the Board of Directors.  Not only was this not done; it wasn't the practice at all.  It was just a way of putting him off, because they had no intention of considering his raise request.  Panunto was clearly 'irritated' by Damaso's raise requests, and felt that they were intended to 'threaten' the company.  (That contention, in and of itself, deserves a great deal of discussion.  It's an interesting thought.  But one for a later date.)

Secondly, the allegations that Damaso was leaving early were bad faith, and over-the-top.  Panunto framed it as "theft" at trial, that Damaso was "stealing" from the company.  The judge took exception to this, but the characterization isn't unusual:  If you're billing the company for time that you aren't working, it might be called "time theft".  The problem is, firstly, that these allegations clearly arose in response to Damaso's objections to his workload, and secondly, that they weren't borne out by the evidence:  Damaso indicated (and the judge accepted) that he frequently came into work much earlier than other employees, to work on the computers when they weren't in use, and that he frequently worked remotely from home.

Thirdly, Panunto claimed in the April 2011 meeting that he would have offered a raise (which probably wasn't true) but for the 'time theft' issue.

All things considered, the judge accepted that there was a great deal of hostility in these interactions, and that the heavy-handed and lawyer-written letter giving him 12 months' working notice and imposing new and additional restrictions while forcing him to do the work he had already said was too much...amounted to a constructive dismissal.  This isn't disconnected from the mitigation issue, where the judge describes the relationship between Panunto and Damaso as "acrimonious to the point of being poisonous".


It's well-established now (for better or for worse) that in the absence of evidence that the employment atmosphere would be one of hostility, embarrassment, or humiliation, an employee can be expected to keep a job from which he has been constructively dismissed, in mitigation of his damages.

In this case, however, the clear acrimony described by the judge in his findings in respect of constructive dismissal rendered this employer argument pretty obviously defunct.

It also entailed an accusation that Damaso was malingering while on disability leave, which doesn't appear to have been supported by the evidence.  Under all the circumstances, I'm a bit surprised that the judge wasn't more critical of the employer's position on this point.  (He merely rejected the argument, saying that he was satisfied by the legitimacy of the disability claim.  But this is the sort of attack which could really hurt an employer, in light of the duty of good faith and fair dealing.)


Neither side challenged the notion that 12 months was a reasonable notice period.  It seems about right.  So that's what was awarded.  However, while this would have been a clear case for Wallace damages, they are no longer available.  I am somewhat perplexed by the absence of any discussion of aggravated damages in the Fidler v. Sun Life framework, given the disability leave issues, but not particularly surprised by the judge's finding that the employer's misconduct did not rise to the level calling for punitive damages.


This case has all the earmarks of an employer trying to have its cake and eat it too, with an employer insisting that the employee absolutely can't stay in the workplace, but also absolutely can't get paid out.  I see this often enough.  Most likely, around the time of the April 2011 meeting, the employer sought legal advice, of the "I want to fire this guy" variety.  They had decided that he was a troublemaker, they didn't want him there anymore, and Panunto probably insisted that the whole 'time theft' issue was a "gotcha" fact.  That's the kind of claim that needs to be thoroughly investigated, though, and it clearly wasn't here.  I can't tell you how often I've had employer clients come to me with what they insisted was a smoking gun for just cause, where I had to figuratively shake them by the shoulders until they realized that it wasn't going to fly as just cause, or at least wasn't sufficiently airtight.  The fact that they didn't fire Damaso and allege just cause is a sign that their counsel urged caution, so they tried to take a different tack.

But lawyer-urged caution doesn't necessarily get a fiery employer to let go of the issue.  The employer wanted Damaso gone, and didn't trust him to leave him as unfettered IT administrator, but absolutely didn't want to have to pay him out a year's notice (as the lawyer probably told him he'd have to) to make him go away, because he was likely utterly convinced that Damaso was a bad apple and didn't deserve a payout.  (Or perhaps because that kind of money isn't always easy for a midsize company to come up with.)

So the notice of termination tried to do too much.  It tried to (a) give working notice, (b) draw an uncompromising line regarding the disputes giving rise to it, and (c) set disciplinary groundrules, all while taking autonomy and responsibility away from the employee to limit his power to do damage.

Working notice is rare, precisely because there's a danger of employees with nothing to lose 'acting out', so to speak.  And while the 'working notices' I've drafted (it comes up every so often) remind employees of their ongoing responsibilities, it's usually in a "Of course you'll do this, because you always have so well" kind of tone.  When there is pre-existing acrimony between management and an employee, to the point that you feel the need to making the notice of termination semi-disciplinary, working notice is simply not the way to go.

Had the employer dismissed the employee for cause for refusing to carry on with his duties, or at least taken a disciplinary line with insisting that he carry on, then that would have had the better potential to generate a successful 'just cause' defence:  We were entitled to insist on him carrying on these duties, and he refused, so we dismissed him.

But if you're going to give working notice, you can't simultaneously fetter the employee's ability to do the duties you're insisting they continue.

And you absolutely can't turn the working notice into something akin to a disciplinary warning for the other not-quite-just-cause issues that caused you to issue the working notice of termination in the first place.

That notice of termination looked to Damaso like an "Even if I go back, I'm just going to get fired anyway" letter, because it raised the bar he had already said was too high, and came in an atmosphere of hostility where they clearly wanted to be rid of him.

Lessons for Employers

While this is something of a perfect storm, there are a lot of points to draw for employers:

(1)  Just because an employee has been performing additional duties for a while doesn't mean you're safe from those additional duties factoring into a constructive dismissal action.

(2)  Working notice, while in fact the only way to terminate most employment contracts in accordance with their terms, can nonetheless constitute constructive dismissal if it imposes terms which are unreasonable or otherwise hints at bad faith.

(3)  Don't lie to your employees.  If you think they're making an unreasonable demand, you need to either talk that out with the employee asap, or talk to an employment lawyer asap - because if you can't discuss or at least refuse the demand, that employment relationship is already on the downslope, and you should take efforts sooner than later to control its ending, before it becomes acrimonious.

(4)  Properly investigate allegations of misconduct.  If you have a concern with an employee's conduct, you need to have a properly-documented conversation with them about it.  Throwing around allegations of time theft without getting the employee's side of the story (in a well-documented meeting) can land you in hot water.

(5)  If you can't trust an employee with working notice, don't.  Get them out now, and take the hit of pay in lieu of notice, or keep them in their position through a period of working notice...but there are no halfway measures.  Saying "I expect you to work another year, but I really don't trust you to do your job properly, so here's the microscope you'll be under" is the long way around to pay in lieu of notice plus significant legal costs.


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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