Employer Failed to Trigger Employee's Duty to Mitigate - Court of Appeal

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By: Landon Young and Jessica Young

“Change or die” has become a truism in business today.  Employers must be able to change their organizations to meet the demand of the ever changing business climate to survive.  However, the law can place significant hurdles in the way of employers who try to change the terms of employees’ employment.

An example of such a hurdle can be found in a recent decision of the Ontario Court of Appeal.  The Court upheld a significant award of damages for constructive dismissal because the employer did not offer to continue to employ the employee after it made a change to the terms of employment.  The Court made clear that employers must actually make an offer of continued employment after the employee refuses to accept a change in the job.

The Duty to Mitigate Applied to Constructive Dismissals

A constructive dismissal is triggered when the employer makes a significant change to the terms of an employee’s employment.  However, the employee may not actually be entitled to any award of damages from a court.

If the court finds that the new terms of employment were not humiliating or hostile, the employee may have a “duty to mitigate” the possible claim for damages and continue working.  Failure to accept continued employment can result in a loss of any entitlement to damages.

The Supreme Court of Canada made this point clear in the decision of Evans v. Teamsters Local Union No. 31, 2008 SCC 20.  In that case the employee was denied damages because the court decided he should have accepted an offer of continued employment from the employer.

This principle was considered and applied by the Ontario Court of Appeal in Farwell v. Citair, Inc. (General Coach Canada).

Farwell v. Citair, Inc. (General Coach Canada)

In Farwell v. Citair, Inc. (General Coach Canada), the trial judge decided that the plaintiff employee was constructively dismissed when his role was changed from Vice President of Operations to Purchasing Manager.  The employee’s compensation would not have changed, but the change in title reflected a diminished role in the company, resulting in a loss of status and prestige.  The employee was awarded 24 months’ pay in lieu of notice under the common law.

The Court of Appeal agreed with the trial judge that a constructive dismissal occurred.   The Court also upheld the notice period awarded in view of the employee’s 38 years of service and senior position.

The employer argued that the employee ought to have accepted the position of Purchasing Manager as part of his duty to mitigate his claim damages.  His salary and benefits in the role would have remained unchanged. The only difference in remuneration was a lesser bonus. The employee was well liked at the company and the circumstances surrounding his termination related to a reorganization. As such, the employer asserted that there would have not been any humiliation for the employee or hostile work environment.

The Court of Appeal decided that, leaving aside the issue of whether the employee would have experienced humiliation or a hostile work environment, the duty to mitigate was never actually triggered because the job had not been re-offered to the employee after he refused to accept the initial change.

The Court held that when the employee refused to accept the position of Purchasing Manager the employer was required to offer the employee the opportunity to work out the notice period in the new position

We will be providing more information on this new development, among other current hot topics in labour and employment law, at our 28th Annual Employers’ Conference.  Attendees receive 6 CPD Credit Hours toward HRPA Recertification and this may apply toward 6 substantive CPD hours with LSUC. To review our complete agenda, or to register, click here.

What Employers Should Know

The decision of the Court of Appeal could be viewed as adding a technical requirement – being to formally offer continued employment – to trigger the duty to mitigate on an employee when a constructive dismissal has occurred.  However, it’s a requirement that employers will have to comply with or face constructive dismissal claims.

To further bolster a mitigation argument, employers should make clear in the offer what the change in the job will entail.  The offer should include at a minimum meaningful detail regarding duties, reporting requirements and compensation.  The employee should also be given a reasonable amount of time to consider the offer and accept.  Of course, the offer should be in writing to avoid any conflicting recollections as to what was communicated to the employee.

Although the law does not always make it easy for employers to adapt to ever changing business and economic conditions, it can be possible to reduce the risk of liability in many cases with clear communication to employees about the change to their jobs and what options they have going forward.

 

Learn more at our upcoming 28th Annual Employers' Conference on November 13!

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