Case Synthesis: Bowes and Kelcher

While I have seen it argued that the Bowes v. Goss Power Products Ltd. case pushes employment law further into its own unique species of contract (i.e. one in which the vulnerable employee needs to be protected), I have argued the contrary, that it reconciles much of employment law with the general principles of contract law.

It is an implied term of every employment contract that the employer will not terminate the employment relationship without just cause except on reasonable notice.  That's actual notice.  Most employers choose to breach this, and to be liable for damages for their failure to do so (i.e. pay in lieu of notice).  The obligation to pay arises by virtue of the breach of contract.

However, the implied term can be modified by an express contractual term.  This is what happened in Bowes.  The employer reserved the right to terminate on a certain amount of notice or pay in lieu, and when it terminated without actual notice, the pay in lieu provisions of the contract were enforced.  The obligation to pay arises by virtue of the contract itself, and isn't subject to other principles of damages.  What Goss Power thought was a right to terminate the contract without actual notice turned out to also be a contractual obligation to pay.

But that right to terminate without actual notice may have other impacts in a few other areas.  Whether or not a contract has actually been breached is going to have consequences.

In this post, I'd like to consider the interrelationship with the proposition set out by the Alberta Court of Appeal in Globex Foreign Exchange Corporation v. Kelcher.  Globex dismissed Mr. Kelcher without notice, and then attempted to enforce restrictive covenants against him.  The majority of the Alberta Court of Appeal, citing the principle from General Billposting Co. v. Atkinson, concluded that the wrongful dismissal meant that Globex was no longer entitled to rely on the restrictive covenants.

What if somebody in Kelcher's position wasn't entitled to actual notice?  What if an employee with a termination clause like Mr. Bowes, as well as an otherwise-enforceable restrictive covenant, was fired on pay in lieu of notice?

By structuring the contract in such a way that the employer can pay the employee to go away without breaching the contract at all, the employer would be protecting itself from liabilities or losses of rights incidental to repudiating the contract, including - most likely - application of the General Billposting principle.

Also, it would be much harder for an employee to make a claim for moral damages, bad faith damages, aggravated damages, etc., without an actual breach of contract to point to.

All that being said, it's quite difficult to implement restrictive covenants in such a way that they will be upheld by the Court.  An employer hoping to rely on a restrictive covenant really needs to have a competent lawyer involved right from the recruitment stage.  I would encourage Ontario employers to contact me for assistance in drafting employment contracts.

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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.

Can Your Employer Unfire You?

There is a new and very interesting case out of the Ontario Superior Court of Justice, Chevalier v. Active Tire & Auto Centre Inc..

As you may recall, Evans v. Teamsters involved a case of an employer terminating an employee, then offering him a fixed term contract to work through the notice period he demanded.  The Supreme Court concluded that his refusal to accept the job constituted a failure to mitigate, so his action failed.  This has had a lot of impact on constructive dismissal cases (i.e. 'Yes, you were constructively dismissed, but you should have stayed in the job anyways'), where there would not be an atmosphere of "hostility, embarassment, or humiliation".

Chevalier is along similar lines.  A manager had been in the job for 33 years, and, after Active Tire took over the workplace in 2007, it made several changes with which he was dissatisfied.  He experienced what he felt was harassment, was transferred to a new location (from Niagara Falls to St. Catharines), was required to work for a period of time in Toronto, and was required to do what he felt was demeaning work.

He was 'laid off' in the face of business difficulties (there were two managers on site, and it was decided that the location could only support one), and he immediately commenced legal action (two weeks after being dismissed).  Active Tire obtained legal advice, was advised that they were not entitled to lay him off (presumably there was no contractual right to do so), and they immediately apologized and offered him his job back.  He declined.

The employer denied having harassed him, and ultimately the judge accepted this, finding that Mr. Chevalier's recollection of events was "magnified and distorted" by his bitterness toward the company.  Active Tire's conduct was, according to the judge, directed toward making him "a more effective contributor as an employee".

The judge considered it relevant, but "not determinative" that Mr. Chevalier had already commenced legal action when recalled to work.

All things considered, the judge ruled, a "reasonable" person would have accepted the job and returned to work.  Accordingly, Mr. Chevalier's action was dismissed.

My Thoughts

The case law backs up the judge's analysis here, but I still question whether or not the result is in the right place here.

I'm not sure that the legal community in general fully appreciates how significant a step litigation is to the general public.  Suing somebody is a big deal.  Being sued is a big deal.  Very few people regard litigation as being simply business, from which they can detach any personal feelings.  Most people think of most commercial transactions as being in good faith, and few people will sign a contract if they expect to have to litigate it.

So I would argue that the fact that litigation has begun should be significant indeed.  (However, it is surprising that the litigation began so quickly in this case.  When I'm representing an employee and the employer has overstepped with something like a suspension or temporary layoff, I would normally start with a demand, putting them on notice of my client's position, and give them an opportunity to get their own legal advice on the point.  Sometimes, depending on the needs of the client, I throw a really slow pitch at first to encourage a recall.  Two weeks...well, it's really fast, and suggests to me that there may have been a "Gotcha!" aspect to the claim, trying to get the litigation moving before the employer could realize its mistake.)

There's also another dimension here.  On the findings of the trial judge, the employer's conduct prior to the termination was mostly within its rights, including disciplinary actions.  However, the layoff was not, and the fact that it followed other discipline - even justified discipline - may not be irrelevant to whether or not the layoff poisons the work environment.  If I discipline you, and then lay you off, the causal relationship is implied.  There may well be other legitimate business considerations at play, but at least the choice of who goes is probably being influenced by disciplinary history.  It sends a message.

This is especially so for a manager, being one of two managers.  It would undermine his authority with the staff, when the employer has clearly sent the message - to him and others - that they don't want him there anymore.

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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.

You're fired! No, I quit!

Every so often, you run into a case where an employee was planning to leave anyways, but was fired first.  Or where an employer gives notice of termination, and the employee resigns before the notice runs out.

What happens in such a case?  Can an employee still sue for reasonable notice if he quits - or was planning to quit - before being fired?

Often, in such a scenario, the employee's rights will be limited.  Let's start with the first scenario, where an employee was planning to leave, but was fired first.

Scenario #1

Conceptually, in a usual wrongful dismissal action, an employee is entitled to be compensated on the basis of what would have happened but for the employer's failure to give notice.  In other words, the judge looks into his crystal ball and sees what would have happened moving forward, and if the employee was going to quit soon, the judge will see that, and the damages will be limited.  Of course, a judge doesn't really have a crystal ball - just the evidence before the Court - and while an employee's intention to quit is going to be relevant to damages, it isn't going to change the fact that it was ultimately the employer who breached the contract.

In reality, what is going to be much more important is why the employee was planning to quit.  Let's say the relationship has been going south for a while and the environment has just deteriorated to the point that I can't be there anymore.  The fact that I was going to quit may be less relevant, because I'd still be able to frame such a resignation, perhaps, as a constructive dismissal.

On the other hand, if the reason I was going to quit is that I had landed a new job, then I have a bigger problem:  Mitigation earnings.  So it's early August, I line up a job to start at the beginning of September, and I'm planning to give my employer three weeks' notice, but I get fired first.  I'll probably be entitled to those three weeks (subject to contractual/common law doctrines), but even if I sue for pay through the whole reasonable notice period, the employer's full answer will be that I had a new job starting in September, and my earnings from the new job will be backed out of the old employer's obligations to compensate me.

Scenario #2

What happens if the employer gives me some actual notice, and I quit partway through?  Suppose for example that I've been with my employer for ten years, and I get 8 weeks' notice, and then put in my own notice of resignation.

Once again, the question is why I resigned.  Is it simply because I can't be there anymore knowing that I'm so unappreciated that I'm being fired?  The fact alone of having been given notice won't be enough.  Coupled, however, with other adverse treatment, it might be argued to constitute a constructive dismissal, which means that I could still seek pay in lieu of notice despite having resigned.

Or maybe I found a new job quickly?  Unusual, but it does happen, and again, there's the mitigation problem, as above.  I can't sue my employer for money I made elsewhere.

The Exceptions

It's law, right?  There are always exceptions.  And exceptions to the exceptions.  So on.

The duty to mitigate isn't universal.  In particular, statutory minimums are not subject to the duty to mitigate.  For the sake of the example, suppose I have ten years of service with an employer who meets the criteria for being required to pay statutory severance.  If they fire me, the stat minimum is 8 weeks' notice or pay in lieu thereof and an additional 10 weeks' severance pay.

So if I'm fired without notice, then it doesn't matter if I was planning to quit the next day without notice, or if I get a job immediately afterwards; I am automatically entitled to the full 18 weeks' pay.

Likewise, if I'm given my 8 weeks' actual notice, and I quit during that notice period, then I will still be entitled to my 10 weeks' severance pay, provided that I gave the employer at least two weeks' notice of resignation.

Having a new job, I may not have any additional entitlements at common law, but the stat minimums can be helpful, especially for long-service employees.  It can be a nice little windfall.

Similarly, following the recent Ontario Court of Appeal decision in Bowes v. Goss Power Products Ltd., people with employment contracts entitling them to a fixed period of notice or pay in lieu thereof will be treated the same way.  If I'm contractually entitled to six months' notice or pay in lieu, and I get fired, then - again - it doesn't matter if I already have a job lined up to start the next day and had a not-too-polite resignation letter in hand when going into the termination meeting, if they beat me to the punch and fire me, I get to chase the whole six months.

Naturally, that analysis doesn't apply to "just cause" terminations - it's never a good idea to just go and get yourself fired intentionally.

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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.

Bowes v. Goss Power Products Ltd. Reversed by Court of Appeal

I posted about Bowes v. Goss Power Products Ltd. twice before - once shortly after Justice Whitaker's initial decision on the application, and again when I saw it on the Court of Appeal's docket.

Background

Put very simply, Mr. Bowes was fired without cause, and had a contract which entitled him to six months' notice or pay in lieu on termination.  He started a new job, with equivalent pay, two weeks after being fired.  This case asks the question of whether or not Bowes is entitled to that six months' pay anyways.

The conventional wisdom is that he is not, that he has suffered no loss and has no basis to look to his employer for compensation.  He 'mitigated his loss', as they say.  Justice Whitaker held to this conventional wisdom, and dismissed Bowes' claim.  Bowes was clearly fighting an uphill battle.

I argued in my earlier entries that there are major flaws in the conventional wisdom - namely, that where an employer has the right to terminate without notice but with pay in lieu, there is no breach of contract that would give rise to the operation of the mitigation principle.  In order to get to Justice Whitaker's conclusion, I argued that one would have to "read in" a duty to mitigate into the contractual language itself.  And this is not good policy - as I wrote before, "In a contract drafted by the employer, and put to relatively unsophisticated employees for their signature, it is extremely undesirable to start reading in obligations based on arcane legal principles such as the duty to mitigate."  Essentially, my argument is that, if an employer wants the employee bound to an obligation to mitigate pay in lieu, the employer ought to be required to put express language to that effect into the contract.

The Decision

Primer

The Court of Appeal released its decision this morning.  It is a fairly lengthy decision, with a unanimous five-judge panel, authored by Chief Justice of Ontario Warren Winkler.  The Court allowed the appeal, finding that payment in lieu of a fixed term of notice is not subject to a duty to mitigate.

In explaining how it got there, I should first note that I skipped a step in my earlier posts when arguing 'No breach, therefore no duty to mitigate.'  Because if there's no breach, then why are they in Court at all?

Let's still try to keep this reasonably simple:  The terms of the employment contract gave the employer the contractual right to terminate without notice, on payment in lieu of notice.  (As distinct from the common law, which requires actual notice, and leads to an intervening 'damages' analysis to determine pay in lieu of notice.)  So the employer terminates the employee without notice, and this does not breach the contract.  The employee therefore has no obligation to mitigate, under ordinary common law principles, nor to account for mitigation earnings.  The employer then refuses to provide the agreed-upon pay in lieu of notice, and the employee argues that this does breach the contract.

What I didn't go into is why this breach doesn't give rise to a mitigation obligation.  I would ordinarily frame this argument with reference to the first principles of damages, in that mitigation relates to income earned through opportunities available because of the breach of contract.  The failure to give working notice, at common law, frees up an employee to work at a new job, so when the employee finds a new job, that's mitigation.  By contrast to an employee who wrote a book in his off hours while employed, and earns royalties which continue to come in after he loses his job; these earnings are in no way a result of his employment contract being breached.

With this contractual language, Goss Power Products had the right to send Mr. Bowes home without notice without breaching the contract, and that act frees up Mr. Bowes to look for new work.  Or sit at home and watch soap operas for six months.  His call, on the plain language of the contract.  So when he finds new work, and starts earning replacement income, the employer still hasn't breached the contract.  So, when the old employer later refuses to pay up, it is that refusal which breaches the contract, which is in no way causative of the employee's opportunity to earn new income.

The Court of Appeal took a slightly different tack, referring to other jurisprudence which resulted from those first principles.  In essence, their decision turns on a characterization of contractual pay in lieu of notice as "liquidated damages" or a "contractual amount".

Contractual Amounts vs. Common Law Notice

Bowes argued that, as the Court put it, "when an employment agreement specifies a period of notice the parties are merely inserting a term akin to a pre-estimate of damages that would flow from non-performance of the agreement."  Such pre-estimates of damages, are generally enforceable, provided that they are not in the nature of a penalty and are reasonable in the circumstances, and - outside the employment arena - are not subject to a duty to mitigate.

The employer's argument is fundamentally based on a passage from a decision by Justice Nordheimer in 2000, Graham v. Marleau, Lemire Securities Inc., stating that a contractual term fixing the notice period "is nothing more than an agreement between the parties as to the length of the reasonable notice to terminate the contract", without being intended to impact other matters such as the duty to mitigate.

The Court of Appeal rejected this argument, finding that "a fixed term of notice or payment in lieu is not equivalent to common law damages for reasonable notice".  When agreeing to contractual language with fixed entitlements on termination, the parties are agreeing to something entirely different from the common law.  The maximum length of the notice is half of the maximum damages which might be recoverable under common law principles and the calculation of pay in lieu was limited only to base salary, with no accounting for his bonus, car allowance, or other benefits (which, again, would be included pursuant to common law principles).  Thus, the Court found that it is an error to simply equate a contractual fixed term of notice or pay in lieu with common law wrongful dismissal damages.

The Court went on to cite language from a 1995 decision by the English Court of Appeal:  "The concept of a duty to mitigate is entirely foreign to a liquidated damage claim....How could it be right to hold the plaintiff, who can show that his actual damage is greater, to the stipulated sum, but permit an employer who can show that it is less to take advantage of that fact?"  (The English Court made the further criticism, quite astutely, that such an interpretation of such contractual language undermines a core objective of the term itself - to provide certainty and avoid the need for litigation.)

The Golden Parachute Concern

The employer argued that, from a public policy perspective, it was unfair to the employer to give the employee such a windfall, in the form of, effectively, double-recovery.

The Court had a number of responses to this, some of which appear to be little more than fact-based retorts, but others which are more substantial.  In particular, the Court notes that it is common in sports, entertainment, and senior management fields for mitigation to be excluded from such contractual provisions.  If it isn't unfair for "the rich, famous, and powerful" - gleeful side note:  Chief Justice Winkler uses the Oxford comma! - it isn't unfair for the "less privileged".  On a more sober side note, many 'less privileged' lacked the bargaining power to insist on an exclusion of mitigation, and yet now will benefit from the lack of language on the point because of the changing law; however, in some ways that's a problem of the employer's own making.

[55]  It is worthy of noting that, in most cases, employment agreements are drafted primarily, if not exclusively, by the employer.  In my view, there is nothing unfair about requiring employers to be explicit if they intend to require an employee to mitigate what would otherwise be fixed or liquidated damages.  In fact, what is unfair is for an employer to agree upon a fixed amount of damages, and then, at the point of dismissal, inform the employee that future earnings will be deducted from that amount.

[56]  Notably, the concern expressed in Graham seems to disregard the oft-observed disparity in bargaining power between employee and employer.  On this point, Iacobucci J. endorsed the following excerpt from K. Swinton, "Contract Law and the Employment Relationship:  The Proper Forum for Reform"...in both his decisions in Wallace v. United Grain Growers Ltd....and Machtinger...[citations omitted]:

[T]he terms of the employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does.  Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure.

As I said before, I consider this to be the most important policy concern.  The legal question, framed at its simplest, is:  When a contract sets out a fixed notice period or pay in lieu, who benefits from silence on the question of mitigation?  The answer consistent with the entire body of law interpreting employment contracts is simple:  If the employer wants to require the employee to account for mitigation, the employer can build in language.

(Of course, the fact that the parties can contract into a mitigation obligation is emphasized several times, and was never in doubt.  So now employers will start building that language into their termination clauses as a matter of course.  No problem, that's their right.  But I wonder how many such clauses, moving forward, will end up failing altogether because of an accidental extension of the mitigation principle to the statutory minimum notice?  Remember:  statutory minimum notice isn't subject to mitigation, and a clause that purports to make it subject to mitigation will be void.  Reasonably easy to account for, if you're aware of the problem, but easy enough to miss, too.)

Consequences

A lot of employment contracts in Ontario have language akin to Bowes'.  While many such contracts limit the employee to the statutory minimums (which means you can't exclude mitigation), and it's relatively unusual that a dismissed employee finds employment quite as quickly as Mr. Bowes did, there are still going to be a lot of dismissals into the future where this case is very significant to the employer's liabilities.

That is, of course, unless the Supreme Court overturns it.  The employer will likely seek leave to appeal, and it's anybody's guess whether or not the Court will hear it.

Did the Court of Appeal Go Too Far?

I'm a little bit concerned about some parts of the decision that are a bit overbroad.  In particular, I've been operating on the premise that a contract contemplating pay in lieu of notice is fundamentally different from the common law, whereas a contract which simply fixes the notice period (without a 'pay in lieu' option) will otherwise operate within the common law framework.

The Court, however, suggests (maybe?) that a contractually fixed notice period is still a different creature in kind from the common law notice period, and therefore might also be treated differently, perhaps also being excluded by default from an obligation to mitigate.  It isn't certain; the Court doesn't really parse the effect of a contractually fixed notice period without pay in lieu, but some of the language used by the Court suggests that it may go that way.

Again, I would feel uncomfortable with that, because it doesn't accord with the first principles of contract law.  If we contract for actual notice, and you fire me without notice, my obligation to mitigate should apply in full force.  Even on the analysis used by the Court, it doesn't seem to me that there's any way of expanding "contractual amounts" to cover language that doesn't include "or pay in lieu".

Congratulations

I'd like to express congratulations to Mr. Bowes, and to his lawyer, Alex Van Kralingen, who contacted me this afternoon to bring the decision to my attention, noting that I "seemed to be the only one in cyberspace on [Bowes'] side".  They were the underdogs in this fight, and - assuming again that it holds up - it will have a significant impact on the law.  The best wins are always the ones that everyone thought you would lose.

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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.

Toyota Service Manager Should Have Mitigated

Justice Belobaba recently released a decision in the case of Ghanny v. 498326 Ontario Limited, and summed up the case quite concisely at paragraph 1.

You’ve been a valued employee for 18 years. One day you’re told that you position is being eliminated at the end of the month but that another job at a related company is available – the same kind of position with the same pay. You’re upset and not thinking clearly and you turn down the replacement job offer. You sue for wrongful dismissal. You eventually find other work but at a much lower position and salary. When the events are replayed at trial and are viewed more objectively, you realize that you should have taken the offered position, that in failing to do so you didn’t mitigate your losses and your action for wrongful dismissal will probably not succeed.

That's essentially the fact pattern.  The owner of Downtown Toyota acquired a Suzuki dealership and reorganized his staffing, telling Mr. Ghanny that his job as Service Manager was ending, but he could take the Parts and Service Manager job at Suzuki, with the same compensation package.  Mr. Ghanny refused, and commenced a wrongful dismissal action.  His concerns included, among other things, that the Suzuki business was smaller, less secure, and a smaller department that he would manage, and also that he would lose the benefit of his 18 years' seniority.  (It is unclear whether his seniority had any impact other than notice of termination.)  There was conflicting evidence on this point, though - management said that they made it clear that his seniority would be carried over.  Management also insisted that they promised job security.  The Suzuki dealership did close 22 months later, but its employees were absorbed by other related companies.


It appears that the different dealerships were operated by separate (albeit related) corporations.


Justice Belobaba concluded, that, whether this is framed as a wrongful dismissal action or a constructive dismissal action, it had to be dismissed because Ghanny should have mitigated his loss by taking the new position.  He applied the framework at play in cases like Evans and Mifsud, which I have discussed before. See this entry for an explanation of the mitigation framework in these cases.


There's also some very interesting obiter:  After the parties got lawyers involved, the employer's counsel made it clear that the Suzuki job was still open, including accrued seniority.  The employee's counsel responded with conditions:  Downtown Toyota had to guarantee Ghanny's salary and benefits; lost wages and costs to that date had to be addressed; and the plaintiff had to be permitted to continue his law suit.

The employer refused these conditions.  The Court concluded that it was unreasonable for Ghanny to insist on the first two conditions, though the third condition was a "legitimate entitlement and the former employer would have been wrong to insist otherwise".  (Frankly, I'm not sure why one would require A, B, *and* C.  If you're continuing the law suit, you're still chasing remedies A and B.  If you get A and B, you don't need to continue the law suit.)  But the Court considered the initial failure to mitigate to be determinative in any event.

My Thoughts


I've noted in the past that I have concerns about the "mitigation with the same employer" cases.  In essence, it often results in the conclusion that the employer unilaterally implemented changes outside of its rights, but the employee should have accepted the changes anyways.  I feel that this is incoherent, and the tests need to be streamlined:  Either an act is a constructive dismissal, and the employee is entitled to quit and seek damages, or it isn't a constructive dismissal, and the employer was entitled to so act.  None of these analytical acrobatics, finding that an act was a constructive dismissal, but the job was still equivalent for the purposes of mitigation and accordingly the employee should have stayed while seeking new employment.

The simple fix, which makes sense from a first principles approach, is that where a unilateral change by the employer has so modified the employment relationship as to create a constructive dismissal, the changed job must inherently be so different as to render it 'not equivalent', such that the mitigation principle will not require the employee to accept the position.  (Reading the other mitigation jurisprudence, one would think that, if anything, mitigation would permit the employee more flexibility than the constructive dismissal doctrine.)  This could involve moving the constructive dismissal threshold up, or lowering the duty to mitigate.

That being said, I think that this case is probably rightly decided, and yet it still raises similar concerns for me.

First and foremost, this case has to be considered in the same context as the constructive dismissal cases, even though it may not strictly be a constructive dismissal case itself.  Because we're talking about related employers, treating them as being actually different would result in arbitrary distinctions.  So I'm glad that the judge felt that it didn't make a difference.

But the judge goes on to note, also in obiter, that even had he believed that Ghanny's seniority would have been lost by the transfer, it wouldn't have made a difference.  It was still unreasonable not to accept it.

If that's right, then the Machtinger line of jurisprudence (i.e. you can't enforce a contract without fresh consideration) dissolves entirely into having all procedural content and no substantive protection for anyone (except for lawyers, I suppose).  It would mean that an employer who is concerned about the notice entitlements of a long-service employee is entitled to simply terminate an employment contract without notice (or on the minimum notice in the ESA) and offer the same job but with different terms, which means that the continued job is 'fresh consideration', and the employer is insulated from a wrongful dismissal suit because of the employee's duty to mitigate.

Finally, some commentary is called for about the employee's imposition of conditions on returning to work.  On these facts, the judge is right - the initial failure to mitigate is determinative, and the subsequent discussions don't matter.  But if one supposed that there hadn't been an initial failure to mitigate, Justice Belobaba is suggesting that the imposition of conditions would still have resulted in a failure to mitigate.

Let's suppose for a moment that you have a wrongfully dismissed employee suing 3 months after the dismissal, and then being offered his job back.

What Justice Belobaba is saying is that the employee is entitled to insist on continuing the law suit - i.e. he can't be required to waive his rights to sue - but he is not entitled to make his due entitlements a condition of accepting the job.  Respectfully, I can't agree that the objectively reasonable expectation is that the employee will take the job back under those circumstances.  Even if there wasn't an acrimonious relationship before...he's suing them now.  It's hard enough to imagine an employee suing his or her current employer while remaining employed (though it has happened).  Saying that an employee is expected to take the job while having to pursue litigation for the unpaid three months...is simply not realistic.

Jack already owes Jill money from breaching a previous contract.  Jill has commenced litigation against Jack to get paid.  Jack now wants Jill to enter into another contract.  Jill responds, "Pay up what you already owe, then we'll talk."  To me, that seems like an eminently reasonable response in any context.  (Indeed, to me, it seems reasonable to insist on additional protections in the new contract to protect Jill's interests in case of another breach.)

Anyone disagree with me on that?

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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.

Breaching Employment Contracts

In my recent post about employment contracts and statutory minimum entitlements, it might be noted that some of the 'example' language used did not allude to 'pay in lieu of notice'.  When terminating employees on a not-for-cause basis, most employers give pay in lieu of notice rather than actual notice, so doesn't it make sense to build 'pay in lieu of notice' into the contractual language?  Give the employer the contractual right to do that which the employer is most likely to actually want to do?

To be perfectly frank, that's a common approach.  Many - perhaps most - employer-side lawyers use contractual notice entitling the employer to dismiss on a certain amount of "notice or pay in lieu of notice", or some such formulation.  And in some circumstances I will as well, but in general I find the term to be better without the 'pay in lieu' option.

This is an area where the principles of employment law are slightly broken, which is why the standard approach of entitling the employer to terminate on 'pay in lieu of notice' hasn't exploded in anyone's face yet.  But if it ever gets fixed, there will be a lot of employers out there with numerous contracts that don't do what they want.

There are several possible issues, including formulaic ESA compliance, actual increased ESA liabilities, and mitigation.

But first let me begin with an explanation of why the language usually doesn't help an employer much.

Efficient Breach

The concept of "efficient breach" has long been an integral part of contract law.  With a handful of exceptions, you can, and should, breach a contract when the cost of completing the contract is more than the damages the other side will suffer because of its breach.   Then you compensate the other party by paying him the value of his losses, and all is well.  It's a complicated and nuanced doctrine, but the point is this:  There is nothing wrong with breaching a contract, in general.  The Courts will make you compensate the other person, but they will not look to punish you for a breach of contract, without more.

There are caveats, of course.  Sometimes, a party can seek 'equitable' relief to force you to carry out your obligations.  (This doesn't apply to notice requirements, though it can apply to restrictive covenants.)  Punitive damages can be sought where there is a separate actionable wrong - i.e. where you did something worse than simply breach the contract.  And you have to take a somewhat expansive view of 'damages' - if it is reasonably foreseeable that the non-breaching party is going to suffer significant mental distress as a result of the breach of contract, you may have to compensate them for such damage as well.  (That's relatively new - it used to also require a separate actionable wrong - but we used to have Wallace damages instead.  For employers, this is a good trade-off.)

When you breach a contract, the measure of compensation for the other party will be whatever is required to put them into the same position they would have held had the contract been satisfied.  In a dismissal context, this means that, if you're entitled to dismiss only on notice, but you dismiss without notice, the damages suffered by the employee will be based on what they would have earned through the notice period - i.e. pay in lieu of notice.  This is the common law framework.  Under the ESA, you're entitled to satisfy statutory obligations via pay in lieu (with continuation of benefits), so that isn't a problem.

Assuming you do terminate an employee without notice, the difference between a contract entitling you to do so and a contract that doesn't is this:  One way, you pay x pursuant to the terms of the contract; the other way, you pay the same x by way of damages for breach of contract.

Not quite right, though.  Mitigation expenses could get added to the tab of the breaching employer, but for reasons I'll go into shortly, the flip side of that is potentially beneficial to the employer.

Also, it is possible that certain sums - bonuses for example - could be excluded from a contractual 'pay in lieu of notice' term, whereas they would be inferred to be part of a damages calculation.  Yet the exclusion from the 'pay in lieu of notice' term could invalidate the termination language itself, as I explained in this recent post.  In reality, it would be no less difficult to craft an *actual* notice clause which excludes bonus entitlements, and doing so one would be more likely to be cognizant of the ESA requirements.

In general, though it requires attention regardless, a party's obligations following a breach of contract will be calculated from the perspective of what the minimal performance of the contract would have been.  So common law damages principles will often, in and of themselves move the employer's liabilities towards the lower end of what is required, without the potentially risky task of spelling out each entitlement specifically.

Problems with Contractual Pay in Lieu of Notice

Formulaic ESA Compliance

Recall that I recently posted about the Superior Court's confirmation that a formula which will not - in all possible scenarios - fully meet the ESA minimums will be void, and not enforced.

What I pointed out in that post is that many contracts are too specific in the employee's entitlements and too broad in excluding the possibility of additional rights.  "Pay in lieu of notice" lacks clear definition in contractual language, and will often be accompanied by a description of what it includes, and language making it very clear that nothing behind the specifics described are included.  If you fail to include something that would be captured by the ESA - benefits, shift premiums, vacation pay, overtime in some cases, bonuses in some cases - that puts the whole clause at risk.

This is an existing problem, but it can be circumvented by a general guarantee that the payment on termination won't be less than the minimum required under the ESA.

Additional ESA Liabilities

This is an interesting point which I've extracted from an argument made by Professor David Doorey.  He argues that all common law pay in lieu of notice is protected by the ESA, because of the expansive definition of wages under the ESA, which includes "monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied".  By operation of this, he argues, the pay in lieu of notice to which an employee is entitled at common law, arising out of an implied contractual term, should be considered wages owing within the meaning of the ESA.

The argument is completely inconsistent with the established jurisprudence, though you have to admit that there's a certain persuasiveness to it at face value.  However, I disagree with it, on the basis that, at common law, there's not really such a thing as "pay in lieu of notice".  There is *actual notice*, and there are damages for failing to provide adequate notice.  The principles of damages are tied into the compensation principle and mitigation principle, and they aren't always owing.  Accordingly, it doesn't seem correct to call them 'wages' within the meaning of the ESA.

However, that counter-argument doesn't extend to written contractual terms expressly entitling the employer to dismiss on 'pay in lieu of notice'.  In such a case, the contract itself says "The employer will pay x to the employee".  Fits pretty neatly into the statutory definition of wages, in that case.

As I said, this is still in conflict with the established jurisprudence.  But there's a persuasive legal argument for it.  In which case an employer with such a written contract would be statutorily obligated to pay out the full contractual notice within the narrow time frames set out by the ESA, and unable to insist on a release being signed in exchange.

Mitigation


I explained part of this in context of the Bowes v. Goss Power case, which has been heard but not yet decided by the Ontario Court of Appeal.  The mitigation principle arises from a breach of contract.  If the contract has not been breached, it seems incoherent to suggest that the mitigation principle arises.  (Again, this is at odds with established jurisprudence, but again, there's a strong argument that the established jurisprudence is wrong.)

If I'm right about this, then a contractual term permitting an employer to dismiss on pay in lieu of notice would require the full amount be paid regardless of mitigation efforts or even of successful mitigation.

In theory, one could draft language permitting salary continuance, which preserved the obligation of the employee to mitigate and preserved the right of the employer to discontinue the payments upon successful mitigation...but this would be complex, and it ultimately may not work.  In particular, I'm concerned about how the employer would enforce the employee's obligation to seek replacement work.  In practice, it would probably be seen as continuing the employment relationship on actual notice and in a different form, and terminating payments because of a failure to mitigate would probably be seen as a termination for "just cause", which is a high threshold for the employer to prove.

Similarly, the possible expansion of ESA protection to contractual pay in lieu of notice would likely lead to the same conclusion, that the contractual pay in lieu of notice is not subject to mitigation, and must be paid regardless.

All things considered, an employer will often be served perfectly well by a contract which makes dismissal without notice into a breach, whereas a contract entitling them to dismiss on pay in lieu of notice is not without its risk.

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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.

Waterman v. IBM - Going to the Supreme Court

I don't follow developments in extra-Provincial case law quite as closely as I do Ontario case law, so sometimes there are really interesting cases that escape my attention until they go up to the Supreme Court.

Waterman v. IBM Canada Limited is an interesting B.C. case.  Here's the trial decision, decided by Justice Goepel in March 2010.  And here's the unanimous decision by the B.C. Court of Appeal.

This morning, the Supreme Court allowed the application for leave to appeal, meaning that they will hear the case.

The Trial Decision

Mr. Waterman was hired by IBM in the U.K. in January 1967.  He was 24 years old, and it was his first full time job.  Two years later he transferred to IBM Canada.  And he continued working there for some forty more years, through thick and thin, including when he was diagnosed with Parkinson's disease in 2003.  Fortunately for him, IBM reversed its mandatory age 65 retirement policy in December 2006, meaning that he didn't have to retire in June 2008, when he turned 65.

However, due to changing economic circumstances, he was advised in March 2009 that his employment would end on April 27, 2009.  Because he had planned a vacation for the full month of April, he convinced IBM to extend the actual notice a further month, resulting in a termination date of May 22, 2009.  Length of service:  42 years, 5 months.

Still not ready to retire, he looked into the finite number of employers who could use his highly specialized skills from IBM - not as if his technology education from the early 60s is very useful these days - and found that they were downsizing too.  So he trained to work in the insurance industry instead, including taking a part-time job starting in September 2009.

Mr. Waterman sought a 24-month notice period.  It's quite surprising to me that he didn't get it - B.C. is usually relatively generous with notice periods.  Despite his exceptional length of service and his advanced age, his character of employment, without managerial responsibilities, was still a factor pushing the award downwards to 20 months.  (B.C. hasn't yet caught on to the trend which has been adopted in other Provinces, including Ontario, of minimizing or rejecting the importance of the character of employment.)  His illness didn't contribute to a longer notice period - the Court cited a precedent from 1984, decided by Beverley McLachlin (now Chief Justice of the Supreme Court of Canada) when she was a judge of the British Columbia Supreme Court (equivalent of Ontario's Superior Court), for the authority that illness doesn't affect notice periods.  And the full two months' actual notice he received was credited to the employer, though he was on a pre-planned vacation for a month of that time and argued that this rendered him unable to seek re-employment in that time.  (Food for thought:  If I'm entitled to 1 month's notice, and have a 1 month vacation scheduled and am fired the day before it starts, I get my accrued vacation pay plus the month's notice.  Nobody could argue that taking a pre-scheduled vacation was a failure to mitigate.  If I'm given notice that my employment ends the day I come back, meaning simply that I'm not coming back, I actually get the vacation pay, and not a dime more following termination.)

Waterman lost significantly on the components of his remuneration which continued through the notice period, too.  He failed to establish an entitlement to his annual bonus, overtime pay, and stock purchase plan.

So Waterman was unsuccessful at trial in many respects.  There is no doubt that his $90,000 judgment was substantially lower than what he had hoped for.

However, he won on a few critical points, too.  The Court found that his decision to seek employment in another field was reasonable; he didn't fail to mitigate.  More importantly, IBM funds a defined benefit pension plan, with no employee contributions, which Mr. Waterman was entitled to collect following the end of his employment, and accordingly the pension plan has paid Mr. Waterman over $2,000 per month since his termination.  IBM argued that his entitlements through the notice period should be reduced by the pension benefits received, and was unsuccessful.  This has become the basis for the appeals.

The Court of Appeal

IBM relies on a Supreme Court of Canada decision from 1997 called Sylvester v. British Columbia, which is a seminal case dealing with deductibility of disability insurance benefits during the notice period.  Where an employer provides disability benefits, and the employee claims those benefits during the notice period, do those benefits get deducted from the employer's liabilities?

The Supreme Court said "yes" in that case, that the parties couldn't have intended the double-recovery that would result otherwise.  It's a decision that has garnered some criticism, and rightly so:  The basis for the decision was, in a nutshell, that it is 'unequal' to give a disabled employee notice plus disability benefits, where the able employee gets only notice.  Yet "equal" treatment does not always require "identical" treatment.  If an employee is unable to work or meaningfully seek work for a six month period due to disability, then six months of disability benefits - intended to replace income for the period during which he can't work - plus a full measure of pay in lieu of notice - intended to replace income for the period of time needed to find new work - are not double-recovery, and put the disabled employee into no better a position than the able employee.

Courts have often distinguished Sylvester, however.  The Ontario Court of Appeal, in Sills v. Children's Aid Society of the City of Belleville, dealt with a scenario in which the employee had made contributions to the disability insurance, and in that case felt that an employer should not be relieved of its obligations because of an insurance benefit paid for by the employee.

In Mr. Waterman's case, the Court of Appeal also distinguished Sylvester, finding that the differences between a pension plan and an insurance policy were sufficient to warrant different treatment, and looked to the intention of the parties in 1967.  The contractual provisions didn't speak to the question, and the Court concluded that the parties would not have intended a clawback of the pension benefits in the event of dismissal.  More substantively, even though the contributions were made by IBM, they were made on behalf of the employee, and for all intents and purposes the plan appeared to be treated as property of the employee.

The Court of Appeal, as a matter of obiter, expressed some concern about the consequences of IBM's position, that it would have the impact of inviting employers to focus their layoffs on older employees with vested pension entitlements.

My Thoughts

Relying too heavily on Sylvester seems a poor approach to this.  Sylvester is a case which has been often attacked as being largely inconsistent with the Supreme Court's usual approach to employment law, and has been routinely distinguished.  One can't be surprised that the lower Courts are continuing that tradition in this case.  This will end up going to the Supreme Court as an opportunity to either broaden Sylvester, or to pull it back as an endorsement of the lower Courts' reluctance to apply it.  Frankly, I think the latter is far more likely.

That being said, I'm not so sure that IBM is wrong on the point.  While the Court of Appeal seems to be concerned about IBM's ability to trigger the pension entitlement itself via a termination without notice, and then to use that act so triggering to reduce its own liability, I think that may actually cut the other way.  Until his employment ended, he had no entitlement to draw on the pension.

This goes to the first principles of compensation and mitigation.  A dismissed employee is entitled to be put into the same position he would have occupied actual notice been given.  There are major nuances to contend with in context of disabled employees, but less so here.  We have a pension plan which vested, but which he could not draw (as far as I can tell from my review of the facts) until the end of his employment.  Fairly simple.

Had he been given actual notice, he would have continued to be paid until the end of the notice period, and his pension benefits would have started thereafter.  Simple, right?  (Of course, if his benefits were reduced because of having to draw on the earlier, that reduction would be compensable over time, too.)

Or let's look at this from another angle:  What is mitigation income?

Usually, in an employment context, it's pretty simple.  You get fired, you get a new job, your new employment income is mitigation income.  What happens if you already had a part-time job, though?  Does your old employer get full credit for your earnings in the other job?

No.  The central principle of mitigation income is that it arises as a result of the breach of contract.  In other words, if it can be said that I wouldn't have had the opportunity to make that money but for the breach of contract, it's mitigation income.  Ordinarily, when I'm fired from a full-time job and I pick up another full-time job, it's fair to say that I wouldn't have been able to work both full-time jobs.  But in the scenario of the part-time job, if I picked up additional hours in the time that I used to work for the other employer, those additional earnings would be mitigation income...but the income from the shifts I always worked even when maintaining both jobs would not be in the nature of mitigation.

Where am I going here?  It's simply this:  But for the termination of Mr. Waterman's employment without notice, he would not have received pension benefits over the relevant period of time.  He was given access to those benefits by the fact of the termination itself.  He made the money as a direct result of the breach, and could not have made it while still employed.

It's a simple and straightforward application of the mitigation principle:  By dismissing him, IBM entitled him to a new revenue stream, and so is entitled to the benefit of that through the notice period.

*****

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.

Bowes v. Goss Power Products Ltd. update

Last August, I posted about the decision in Bowes v. Goss Power Products Ltd., in which Mr. Bowes was terminated from his position as Vice-President.  Under the terms of his contract, he was entitled to 6 months' notice or pay in lieu thereof.  He found a new job with equivalent income 12 days after his termination.  Essentially, he was trying to enforce the contractual term requiring the employer to pay him the 6 months' notice anyways.

The Court said No, because he had mitigated his loss based on the loss of employment.

I noticed recently that an appeal is scheduled to be heard next month.  Should be interesting to see.

Bowes is definitely the underdog here.  He lost his job, suffered no loss, presumably already received a modest windfall in the form of his statutory minimum notice, so he's suing for damages he hasn't really incurred in any meaningful sense.  The body of employment law jurisprudence is against him.

But, on more basic principles of contract, I'm not so sure that he's actually wrong.

When I'm rooting for the employee here, it isn't because of a pro-employee bias.  I think of myself as being fairly balanced.  I fight vigourously for the interests of my clients, be they employee or employer, in specific files.  But outside of my files, I'm on the side of law which makes sense.

Wrongful Dismissal:  The Usual Case


Normally, at common law, an employer is entitled to dismiss an employee on reasonable notice.  Contractual language can define the reasonable notice period, or change the reasonable notice period, within limits.  Notionally, an employer is entitled to say to an employee:  "Your employment will end on date x, which is y months out."  Then the employee would keep working until date x, looking for a new job for afterwards.

In practice, this never happens.  Most employers send home a dismissed employee immediately, preferring instead to provide "pay in lieu of notice".

However, under the common law default, an employer is not contractually entitled to fire without notice notwithstanding a payment in lieu.  As much as we might tend to conflate reasonable notice, notional notice periods, and pay in lieu of notice, the actual default obligation is to provide actual notice.  The Court of Appeal made this clear recently in Love v. Acuity Investments.  When an employer fires without notice (and without just cause), this is a breach of contract, and pay in lieu is "an attempt at compensation for the breach."  Pay in lieu is, in essence, damages.

This is important to understand, because then we start to understand why the mitigation principle applies.

There are two very fundamental principles in damages for breach of contract.  The first is the compensation principle, that the non-breaching party should be put in the position it would have been in had the contract been honoured (i.e. had actual notice been provided), to whatever extent this can be achieved by the payment of money.

The second is the mitigation principle, that a loss which is avoidable cannot be recovered.  This principle essentially creates an obligation on a fired employee to seek new work.

These are principles of damages, not of contractual interpretation.  They presuppose that a party has been wronged and suffered damage as a result.

If I get fired on actual working notice which is reasonable, then the contract hasn't been breached.  These principles don't apply.  I keep working, and once the notice period runs its course we go our separate ways.  There's no obligation to look for a new job during working notice - though it's just good sense to do so.

If I get sent home, however, without notice, then my contract has been breached.  I'm entitled to continue to be paid as I would have been had notice been given (compensation principle), but that doesn't mean that I'm entitled to sit at home and watch soap operas for y months.  I need to get out there and take reasonable steps to find another job.  If I don't do so, then my entitlements get reduced accordingly.

If I actually find a new job, with new income, then my income through the new job gets deducted from my entitlements from my old employer, because that goes partway to putting me back into the position I would have been in but for the breach.  This is what we're talking about when we describe "mitigation income".

Put into this framework, Bowes clearly shouldn't recover much:  After all, he earned mitigation income sufficient to put him back into the position he would have been but for the breach...but wait...what breach?

How this Case is Different


Goss Power Products was entitled by the employment contract to dismiss on provision of pay in lieu of notice.  Therefore, by terminating him without actual notice, there was no breach of contract.

No breach of contract, no duty to mitigate.  No duty to mitigate, no need to account for mitigation earnings.

Essentially, the language in the contract appears to have been quite simple:  We can fire you without notice, and we'll pay you this much for it.  In fact, this type of contractual language is not uncommon.  Which is why there will be an impact if Bowes wins.

Bowes' position is almost elegant for its simplicity.  The contract says the employer should pay, so the employer should pay.

The Superior Court's response was quite complex, actually, finding that the contractual language was not intended to displace the obligation to mitigate that exists in the usual case, and therefore does not do so.  But that seems not to be quite right, either:  Obligation to mitigate what?  If one supposes that Bowes had not obtained new employment, and the pay continuance had continued through the notional notice period, there would have been no breach of any contract at all, such that an obligation to mitigate is triggered.  In other words, the contract on its face suggests that Bowes could have spent six months watching soap operas, and the employer couldn't say anything about it.

To sum up:  Unlike the usual case, in which the termination without notice is a breach of contract requiring the employee to mitigate his loss, Bowes' termination without notice was not a breach of contract, meaning that he suffered no loss thereby which he could be required to mitigate.

Indeed, in order to get to the Superior Court's conclusion, one would have to actually read mitigation into the contract as an obligation of Bowes' in his performance of the contract.  That is problematic:  In a contract drafted by the employer, and put to relatively unsophisticated employees for their signature, it is extremely undesirable to start reading in obligations based on arcane legal principles such as the duty to mitigate.

At the end of the day, I would argue that Bowes has a point:  If an employer wants a contract to include a right to provide pay in lieu of notice while still preserving the employee's duty to mitigate, it should expressly include that in the contract language.

*****

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.

Brito v. Canac Kitchens Appealed

Last week, the Ontario Court of Appeal released its decision on the appeal of the late Justice Echlin's decision in the Brito v. Canac Kitchens case.  I discussed the original decision shortly after it was released in this post.

This was one of many wrongful dismissal cases against Canac, and included several plaintiffs.  One of the plaintiffs, Mr. Olguin, became disabled during the notional notice period, battling cancer.  Incidentally, he had found a new job fairly quickly after being fired, albeit at a lower rate of pay, and his new job didn't have benefits, so when he had to stop working, it was without any LTD coverage.

Justice Echlin found Canac Kitchens responsible for what the LTD policy would have paid out, but for the termination of benefits, to the tune of nearly $200,000.  Justice Echlin was pretty displeased with the employer's approach to termination of the coverage and litigating the point, and awarded $15,000 in what he called "ancillary damages" for not unilaterally continuing disability coverage and paying out only the statutory minimum notice.  There was some murmur in the employment law bar about this - it was novel, and condemned essentially what has become standard employer practice.  I commented in a discussion on Professor David Doorey's blog at the time that I wondered if this would hold up on appeal, as the ancillary damages "[look] like punitive damages to me, to which the appellate Courts have applied an extremely high standard in employment cases."

However, while the $15,000 in ancillary damages was novel, and in some ways asked for an appeal, Justice Echlin's reasoning on the damages for loss of LTD benefits looked relatively solid.  Both points were appealed, and the result is as expected.

The Court of Appeal upheld the award of damages in respect of LTD benefits, but found that the "ancillary damages" were in the nature of punitive damages...

...and that since punitive damages weren't pleaded in the statement of claim or sought at trial, the award could not stand.

My Thoughts


I'm a little disappointed with the Court of Appeal's dodge of the ancillary damages question.  It's a novel question of law, and while the decision was no doubt correct that it can't be awarded if not pleaded, I would have liked to see some obiter as to whether or not the award might have been upheld if pleaded.  As it stands, this does not endorse Justice Echlin's finding that Canac's conduct was blameworthy, but nor is it an outright rejection of the suggestion that paying only the statutory minimums might give rise to such damages. Given that this suggestion was made by a widely-respected judge and expert in the employment law arena, it's something that still might carry some sway.

Also note the costs award:  Canac Kitchens defeated the $15,000 ancillary damages award, but lost on the $200,000 issue, and therefore was ordered to pay another $20,000 to offset Mr. Olguin's costs on the appeal.  Just can't catch a break.

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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.

Olivares v. Canac Kitchens

Justice Lederman recently released his decision in what he calls "yet another in a long list of wrongful dismissal actions...arising from the cessation of Canac's manufacturing operations in 2008."

It's a pretty standard wrongful dismissal case in many respects.  A 48-year-old shipping supervisor with 24 years of service sought pay in lieu of notice.  Some other interesting factors:  The plaintiff started working at Canac immediately after moving to Canada from Chile at age 24, and was able to function there speaking mainly Spanish.  Result:  Limited English skills, limited education, limited Canadian re-employability.

The Canac Kitchens cases seem to generally have fairly generous notice periods, by contrast to other jurisprudence.  Still, at this stage of the game the Canac cases are becoming a jurisprudential force all their own:    The plaintiff in this case was able to point to other generous awards Courts have made to his co-workers, in support of his own claim for significant pay in lieu of notice.  Successfully so:  He was awarded a notice period of 20 months.

There are a couple of curious features to this case, though.

Cancellation of Benefits


It's trite law that an employee is entitled to the full benefits to which they would have been entitled throughout the notice period.  Accordingly, when an employee is terminated without notice, and their health benefits are cancelled, they should get some compensation.

Traditionally, there have been decent employer arguments that the employee should only be compensated for out-of-pocket expenses actually incurred, and that if the employee really wants insurance coverage for significant expenses they should pay for coverage (which then becomes a recoverable out-of-pocket expense).  This argument does seem to ignore the reality that displaced employees are ill-positioned to invest in insurance, and will tend to just avoid health-related expenses they can't afford.  That doesn't mean they haven't suffered any loss.

In Brito v. Canac Kitchens, however, Justice Echlin rejected the argument that failing to purchase replacement benefits was a failure to mitigate, awarding the employee damages in respect of lost LTD coverage.

In this case, Justice Lederman took it a step further towards employee-friendly.  Mr. Olivares had waived dental and medical coverage, instead taking the coverage available through his wife's employment.  In other words, Canac wasn't paying for dental and medical coverage for him.  Nonetheless, Justice Lederman concluded that there was value added in the peace of mind of having those benefits available to be opted into in the event that his wife lost her job, and therefore he awarded damages on the same scale as other employees had received who had relied on those benefits.

Mitigation and Estoppel


It is also trite law that mitigation earnings should be deducted from an award of damages in respect of pay in lieu of notice, at common law, but that the statutory minimum notice and severance payments are not subject to mitigation.

Thus, if I get a job with equal pay the day after being fired, I'm still entitled to my statutory minimum notice and severance if applicable.  But likely nothing beyond that.

In this case, the plaintiff had a statutory notice period of 8 weeks, and statutory severance pay of another 24 weeks.  During his first 32 weeks after being fired, he did some work as a drywaller earning $26,600.  The question becomes whether that is mitigation income which should be deducted from his common law entitlements, or whether the common law analysis of mitigation doesn't even begin until after statutory minimum pay runs its course.

As it turns out, there's conflicting law on the subject...both in Canac Kitchens cases.

In Yanez v. Canac Kitchens in 2004, Justice Echlin deducted an employee's mitigation earnings from his common law entitlements, notwithstanding that part of those earnings were covered by the statutory notice period.  By this logic, Canac should get credit for Olivares' $26,600 earned during the stat notice period.

In Moldovanyi v. Canac Kitchens, on the other hand, Justice Brown held otherwise, relying on a subsequent decision by the Divisional Court.

Quite frankly, I think that Justice Echlin's approach is much easier to reconcile with the first principles of employment law.  Justice Brown's approach requires one to perceive the common law notice period as something that doesn't even begin until the statutory notice period runs out...particularly when we're dealing with statutory severance as well, which cannot be paid via pay continuance, that is a difficult concept to justify.

Nonetheless, Justice Lederman's approach is even more curious.  In the Olivares case, Canac is arguing that Justice Brown was wrong.  Justice Lederman's response:  Why didn't you appeal, then?  He finds that it would be an abuse of process to allow Canac to re-litigate the same issue again.  So they're stuck with Justice Brown's approach.

This is akin to, but not quite, issue estoppel.  In the ordinary course, if you and I have litigated an issue before and received a final decision, that decision is binding and immune to subsequent litigation as between us.  However, as between you and a third party...not so much.  Nothing usually stops you, strictly speaking, from litigating the same question against others, even though you may have lost against me.

Thus, where we're talking about a different employee with different mitigation income, it would be unusual and incorrect to apply the doctrine of issue estoppel, despite it being a similar question of statutory interpretation.

The consequences?  Well, if an organization is stuck with any unfavourable legal conclusion that may be raised by others in subsequent proceedings, we would see much more value added in appeals, and significant difficulty in settling appeals.  Every Court loss a company suffers will go from being an unfavourable persuasive case to a binding precedent.  The same, of course, cannot be said of wins.

*****

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.

Layoffs in Non-Union Contexts

An unusual case came out from the Ontario Superior Court of Justice recently, McLean v. The Raywal Limited Partnership, where the core question, as the Court puts it, is "whether the plaintiff was laid off or dismissed".

This is strange, and rare, because the terminology of a "layoff" doesn't usually properly apply outside of union settings.  Yes, people will often use the term "layoff" to describe a dismissal due to reasons of business restructuring, thinking that "fired" or "dismissed" implies that there was misconduct, but that's not really a fair distinction where there are no unions.  People are fired for just cause, or not for cause.

At law, the best way of seeing the distinction between a layoff and a dismissal is that a layoff contemplates the recall of the employee.  And, in fact, the Employment Standards Act, 2000 has provisions dealing with temporary layoffs of limited durations, but that doesn't mean that they're available in every employment situation.  The employer needs to reserve the right in an employment contract.  As the judge put it in McLean, "In the absence of a contractual basis for layoff, the device of layoff does not exist at common law and any purported layoff will be, in fact, a dismissal."

In this case, in 1998 Natalie McLean was hired by Raywal.  Raywal had an employee handbook which included layoff provisions, but it was not integrated into her written offer of employment.  It was not referred to in the offer of employment, nor was she required to acknowledge in writing that it formed part of her contract.

I've talked about this before, usually in context of termination provisions:  Even if she received the handbook the day after accepting the offer of employment and read it and signed it, there would be a 'consideration' problem.  She wouldn't be contractually bound to it unless there's something of value passing in exchange for her agreeing to it.  (Other policies in an employee handbook are trickier - an employer has some rights to change the conditions of the work environment.  Hours of work, absenteeism and discipline policies, dress codes and decorum, use of office equipment...these are all things that the employer will be entitled to amend, within certain limits, unilaterally and on a regular basis.  The employee never really has a choice but to comply with these directions, and won't often be successful in arguing constructive dismissal on such bases.  But something permitting the employer to send the employee home without pay...that goes to the heart of the employment contract, and is not something that the employer will really be entitled to implement unilaterally.)

This case is a little more complicated than a simple consideration case, though, because McLean was laterally transferred to a different position in 2008, at which point she did sign a new contract which integrated the employee handbook.

In October 2010, McLean was told that she was being laid off, and given a recall date of June 27, 2011.  In late May, she was recalled, but she did not return to work.

So the question becomes whether or not the 2008 contract amendment was valid.  The judge found that there was no "obvious or certain improvement in compensation or terms of employment", and therefore no consideration.  (The employer argued that the provision of benefits through the layoff period was an improvement to her compensation package, but the judge understandably rejected that.  It would be a hard sell that saying "If we send you home temporarily, we'll leave your benefits in place" is a plus to somebody who is entitled not to be sent home.)

Therefore, McLean was dismissed and was entitled to pay in lieu of notice.  The judge found that no failure to mitigate was established, including by McLean not accepting an offer made on the eve of mediation in the litigation process, and awarded ten months' pay in lieu of notice.

My Thoughts


The decision largely makes sense to me, but I'm a little bit perplexed on the mitigation point.  It doesn't make clear when the litigation was commenced nor when, exactly, the offer on the eve of mediation was made, but while I can certainly understand the judge's reasoning dealing with the offer on the eve of mediation, I cannot understand how (or if) the judge dealt with the mitigation consequences of the original recall date or the notice of recall.

Given how the law of mitigation has developed, particularly after the Evans v. Teamsters case from the Supreme Court of Canada, failure to return following a recall notice, in most cases, would probably be considered a failure to mitigate.

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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.

Legal Remedies of the Still-Employed

I've had a remarkable number of calls lately from people who still have their jobs, but who take issue with actions of their employer, be they disciplinary issues, changes to the nature of the job, or unreasonable employer demands backed up by a threat of termination.

It is possible to take the position that you have been constructively dismissed.  As I've discussed before, it isn't easy, and it's never guaranteed.  It adds an additional couple of layers of uncertainty onto an already uncertain process.  And while it is possible to sue your employer while still working for them, that’s only appropriate in some situations (and will likely cause problems for you with most employers).

The last example I gave really puts this in perspective.  An employee facing unreasonable demands and a threat of termination has two choices:  Give in to the demands, or risk being unemployed.  Assuming that it isn’t a demand they are entitled to make, they won’t be able to make out a case for just cause when you refuse to do so, which means you’ll be entitled to pay in lieu of notice of termination if you get fired.

But how much is that?  And is it enough?  Let’s suppose that you make $50k per year, and are entitled to approximately six months’ notice.  You’ll have a claim worth $25,000.  Which seems like a lot of money, when you say it this way:  If I get fired, I can get $25,000.  But it isn’t that simple.  First off, it’s truer to say “I can maybe get $25,000 or so.”  And then you have to factor in legal fees (which can be substantial), taxes, the fact that any EI entitlements will be deferred until after the six month period...not looking like such a lot of money anymore, is it?  Oh, and don’t forget that you may have to go to the end of a litigation process, years out, before you see a dime of it - unlike straight dismissal cases, employers are often very reluctant to acknowledge any basis for liability in constructive dismissal cases.

And here’s the hitch:  You’ll be unemployed.  How long will you be out of work?  Six months?  A year?  Longer?  Even if it’s shorter, there’s no windfall to be had here – if you find an equivalent new job in two months, you’d only win two months’ pay from your own employer, assuming you win at all.  (That's the 'mitigation principle' at work.  Don't be discouraged from looking for work, though, or accepting a job - failing to take reasonable steps to secure replacement employment can reduce your entitlements, too.)

So you really have to say “I can maybe get $25,000 or so, less legal fees, but I’m not sure when I’ll get it, and in the mean time I’ll be unemployed and I’m not sure when I’ll start getting a steady pay cheque again.”

In other words, when remaining gainfully employed is an option for you, you should think very carefully about your options before throwing that away in exchange for a chance of some litigation entitlements.



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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.

Back to Basics: Constructive Dismissal

I frequently refer to constructive dismissal, such as in my recent post about McMillan v. Selectrucks.  I often talk about it in a fairly cursory way, but I feel it's important to occasional address more basic questions.

What is Constructive Dismissal?

Constructive dismissal is a term that most people have heard of, a general idea that, if the employer does something wrong, they can quit and still demand a package.  It's a term that's thrown about pretty casually in some contexts, yet people are rightly reluctant to give up secure employment on the basis of some simplistic sense of an abstract legal principle.  The result is that I, and lawyers like me, get lots of calls from employees saying, "My employer did x, have I been constructively dismissed?"

The essence of constructive dismissal, and part of what makes the doctrine very weak in many cases, is that it is an extension of wrongful dismissal.  Wrongful dismissal damages are not a windfall.  You don't get rich by suing in wrongful dismissal.  Indeed, in many cases the entitlements are quite limited, and so it seems a poor trade to lose one's job in exchange for wrongful dismissal damages.  The appeal of constructive dismissal, of getting paid to walk away, quickly loses its glamour in light of the bleak future of unemployment in an uncertain economy.

So, if you have been constructively dismissed, you are entitled to treat yourself as having been terminated by the employer.  Sort of.  There are all sorts of exceptions and qualifications to address, but let's look to the legal definition first:  A constructive dismissal results when the employer unilaterally makes a fundamental or substantial change to the terms of an employee's contract.

Whether or not the change is unilateral is pretty straightforward:  If you agree to the change, it isn't unilateral.  Whether a change can be characterized as fundamental or substantial...is trickier.

In the jurisprudence, there are really two different types of constructive dismissal.  There's the constructive dismissal where the employer actually changes the employee's duties, functions, title, compensation, or some other aspect of the terms of employment (the "demotion" cases), and then there are the Shah-type cases, where an employee quit to escape harassment or an otherwise poisoned work environment.

It is largely a matter of scale.  The employer is entitled to make certain changes to the terms of an employee's contract, and that includes reductions in pay...to a certain extent.  When the change is large enough to be said to be a 'fundamental' change, then it can be characterized as constructive dismissal.  Where an employee is demoted, with a loss of prestige, that too can be a constructive dismissal, depending on the significance of the change.

The McMillan case shows how even the Shah-type cases are a matter of scale:  Even if you can show that you have been treated unfairly by the employer, and this led you to leave, that will not necessarily make out a case for constructive dismissal.

There are also the 'discipline' cases, which can be a hybrid of the two types.  Sometimes, it's discipline being imposed as part of a campaign of harassment, making it a Shah-type case.  Other times, the discipline itself can exceed employer authority.

This is a mistake I've seen unionized employers make with their non-union staff members, applying the same disciplinary process to them, including unpaid suspensions.  The way the jurisprudence sits on unpaid suspensions was set out by the late Justice Echlin in Carscallen v. FRI Corporation, upheld by the Court of Appeal:  Unless there is an express contractual right to do so (as there usually is in collective agreements, but seldom in individual contracts of employment), an employer has no inherent right to impose unpaid suspensions in disciplinary matters, unless the misconduct rises to the level of "just cause".  In other words, if the employer would be justified in firing the employee without notice, then it can forbear and instead issue an unpaid suspension instead.  Otherwise, it will be a breach of contract, and possibly generate a constructive dismissal.

The Difficulty of Mitigation

When your employment is terminated and you want pay in lieu of notice, you're obligated to try to mitigate your loss by seeking replacement employment.  There is a line of cases dealing with demotions or pay cuts establishing that, where the demotion isn't the result of a soured relationship, an employee can be expected to accept the new position with the same employer in mitigation of the loss generated by the constructive dismissal.

In other words, you might be entitled to treat yourself as having been dismissed by your employer, yet your employer may still be entitled to expect you to stay in the job nonetheless.  (In a previous blog, I wrote of this disconnect and called it "Unconstructive Dismissal".  Just to clarify terminology, there's not actually such a thing called "unconstructive dismissal"...that was just ironic wordplay on my part.)  So there have been cases where the Court has found that a constructive dismissal had occurred, and yet the Court also found that the employee should have stayed in the job as mitigation while seeking a new job, with the result that the employee had few if any entitlements.

(In a case that turns around the same concept, an employee whose pay was cut significantly actually stayed in the job and sued the employer for the salary to be topped up through what would have been the notice period.)

There was one case that went to the Supreme Court, Evans v. Teamsters, which was similar, though not strictly a constructive dismissal case:  The employee had actually been dismissed, and was offered another position on a contract basis through the notice period when he came back with a lawyer's letter.  The Court felt that refusing the job was a failure to mitigate.

I feel that this doctrine needs to be refined, for two reasons.  Firstly, mitigation is usually fairly employee-friendly:  Employees are not generally required to take the first job that comes along, but are entitled to hold out for a job that is close to being as good as the old job.  Outside of these "employment with the same employer" cases, I know of no other case that holds that an employee should accept another position on a temporary basis while seeking replacement employment.

Secondly, this disconnect is the result of having two different standards for what should essentially be the same thing.  In my view, if the changes in the employment relationship are not so significant as to make the resulting job 'not equivalent' for the purposes of mitigation, then it can't be constructive dismissal.  Conversely, if the changes are significant enough to constitute constructive dismissal, then the job can't be close enough to expect the employee to accept it in mitigation.  Still, that's my own view, and does not reflect the current state of the law.

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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.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation.  If you need legal assistance, please contact him for information on available services and billing.