Constructive Dismissal – Farwell v. Citair Inc. (c.o.b. General Coach Canada)

In Farwell v. Citair Inc. (c.o.b. General Coach Canada), 2014 ONCA 177 (March 7, 2014), the employee had been demoted from the position of Operations Manager/Vice President of Operations to his prior position of Purchasing Manager during company restructuring.

Constructive Dismissal

The change in the employee’s title included a significant change in the employee’s responsibilities and duties and was viewed as a demotion.  As such, the trial judge concluded that the employee had been constructively dismissed, consistent with the law as set out by the Supreme Court of Canada in Farber v. Royal Trust Co., [1997[ 1 S.C.R. 846 at paragraph 34:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.

This determination was upheld on appeal by the Ontario Court of Appeal.

Damages

Damages in the amount of 24 months’ pay in lieu of reasonable notice was awarded to the employee upon considering the factors set out in Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140: the character of employment, the length of service of the employee, the age of the employee and the availability of similar employment.  The Employee in this case was 58 years old; his employment had spanned 38 years; he was a high level management employee; and the Court specifically noted that he had been very dedicated to the employer.

The Court of Appeal upheld the trial judge’s award of damages.

Duty to Mitigate

The employer argued that the employee was obligated to accept the position of Purchasing Manager during the notice period in order to fulfil his legal duty to mitigate his damages because the salary and working conditions were almost the same, with the exception that there would be a reduced bonus.  The trial judge noted that “an employee cannot be obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation,” and determined that the employee had not failed in his duty to mitigate by refusing to accept the new position as that would objectively be humiliating and embarrassing.

The Court of Appeal also determined that the employee had not failed in his duty to mitigate by refusing to accept the demotion, albeit for different reasons.  The Court of Appeal stated that in order for the employer to successfully claim that the employee had failed to mitigate by refusing to work for the employer during the notice period, the employer was obliged to have offered the employee the opportunity to work out the notice period after the employee’s refusal to accept the demotion.  No such offer was made in this case.

The employer’s appeal was dismissed.

What this Means for Employers

Farwell v. Citair Inc. (c.o.b. General Coach Canada), 2014 ONCA 177, serves as a reminder to employers who seek to make unilateral changes to employment that it may lose its employee and be required to pay damages if the changes meet the test for constructive dismissal.

Employers can attempt to trigger the employee’s duty to mitigate losses arising due to a dismissal by offering alternative employment; however such an offer must be made following the dismissal.  From other cases, we know that dismissed employees are not required to accept employment that involves an atmosphere of hostility, embarrassment or humiliation.