Constructive Dismissal Claims: Has the Standard Changed in the New Economy? L. Frank Molnar
Introduction Management rights Limits Collective agreement Employment contract
Standard for Constructive Dismissal Test from Farber v. Royal Trust (1997) S.C.C. Did the employer unilaterally make a substantial change to an essential term of employment? Do the acts and conduct of the employer evince an intention to no longer be bound by the contract?
Standard for Constructive Dismissal Objective test Employer does not have to intend for the employee to leave Remains the standard in recent decisions Alberta Permit Pro v. Booth, 2009 ABCA 146 Robertson v. West Fraser Timber Co. Ltd., 2009 BCSC 602
Standard for Constructive Dismissal Employer can change employment contract with reasonable notice of the changed terms Alternatively, make the employee whole during transition period
Types of Constructive Dismissal Includes: 1. Demotion 2. Changes in remuneration
Demotion Loss of prestige and status Indices of demotion are: a)changes in job title b)changes in reporting function c)changes in substantive duties d)transfers to positions of lower prestige and status Change in any one of these factors alone does not necessarily constitute constructive dismissal
Demotion Robertson v. West Fraser Timber (2009) (B.C.S.C.) Long term employee started with predecessor company Weldwood in 1978 Job duties evolved over time to include managerial and supervisory responsibilities WFT made changes once it acquired Weldwood January 1, 2005 Alleged dismissal March 6, 2007
Robertson v. West Fraser Timber Lost responsibilities and benefits Removal of supervisory responsibilities Failed to reassign to a position of commensurate or equal stature or function Removed from the management bonus program
Robertson v. West Fraser Timber No constructive dismissal Management and supervisory responsibilities not essential terms in circumstances Employer entitled to add and to remove responsibilities as it saw fit Loss of bonus program represented change of less than 5% of overall remuneration
Changes in Compensation Generally 9-10% reduction alone not viewed as causing a constructive dismissal Effect of downturn in economy on this rule of thumb Some indication that a slightly higher reduction alone may not constitute constructive dismissal
Changes in Compensation Pavlis v. HSBC Bank Canada (2009) (B.C.S.C.) 3.5 year employee investment advisor Compensation included trailer fees Alleged HSBC failed to pay trailer fees owed Unpaid trailer fees amounted to between 2% and 6% of average salary
Pavlis v. HSBC Bank Canada Court stated: 9-10% reduction of average salary alone fundamental breach 14-17% reduction can = fundamental breach in conjunction with some other significant unilateral change 20-46% reduction alone = fundamental breach
Pavlis v. HSBC Bank Canada No constructive dismissal Unpaid compensation ranged between 2-6% 7 month delay by employer in making payment significant delay Did not elevate non-payment of relatively small amounts of compensation to constitute a fundamental breach
Doran v. Ontario Power Generation (2007) (Ont. S.C.J.) 30 year employee Vice-president of Business Development Reduction in compensation and duties Change in reporting structure
Doran v. Ontario Power Generation Implied term of employment contract that overall compensation would remain at same level or would rise Plaintiff not advised of clause in Annual Incentive Plan permitting termination or suspension of plan Total reduction of 14-17% Alone, not a fundamental breach
Doran v. Ontario Power Generation Corporate reorganization or employer financial circumstances does not excuse breach of employment contract Change in reporting structure did not diminish Plaintiff s status within the organization Unilateral and indefinite reduction in duties Combination of reduction in compensation and job responsibilities = fundamental breach
Changes in Remuneration Changes involving a reduction in something other than salary may fundamental breach Economic hardship of company may be a factor
Changes in Remuneration Otto v. Hamilton Surveys (1993) (A.C.A.) Suspended 5% RRSP contribution employer portion Reduced vacation entitlement from 6 to 4 weeks No constructive dismissal
Otto v. Hamilton Surveys Company s benefits most generous in the industry Salaries higher than average External economic pressures; dramatic reduction in revenues No fundamental breach
Otto v. Hamilton Surveys Court stated: reductions in the benefit package due to external economic pressures, but where salaries are maintained have consistently escaped characterization as fundamental breaches.
Changes in Remuneration Scaffold Connection Corp., Re (2001) (A.B.Q.B) Regional branch manager for 34 months Paid salary and commission Employer encountered serious financial difficulties in 1999 and filed under CCAA Altered commission structure
Scaffold Connection Corp. Later, demoted employee to lower position with $25,000 lower salary Court held commission structure not fundamental term Only one recent contract had caused commissions to become significant part of income Change due to economic hardship of employer of which employee was fully aware
Scaffold Connection Corp. Further, change was due to obvious economic hardship of the company However, later demotion to vastly different position with decrease in salary was a fundamental change
Cumulative/incremental Changes Cumulative effect of many changes over course of a few months may result in a fundamental breach The gradual undermining of authority or the last straw May entitle employee to view himself as constructively dismissed
Kussmann v. AT & T Capital (2002) (BCCA) March 1, 1997 - unilateral salary reduction March/April - removal of services of an administrative assistant May-July - Employer s refusal to pay agreed sum of money Sandrelli override Collectively, entitled Kussman to view himself as constructively dismissed July, 1997
Kussmann v. AT & T Capital (2002) (BCCA) Trial judge reduction in base salary (11.4%) was itself a fundamental breach of the employment contract C/A overturned finding since not plead Held constructive dismissal as a result of cumulative events
Condonation Employee must elect to accept or reject unilateral change within a reasonable time If employee remains in modified job he or she is said to have accepted the modification (condonation) The length of reasonable time varies, based on the circumstances
Condonation Robertson v. West Fraser Timber Court stated that a period of several months may be reasonable, depending on the particular circumstances Robertson took 2 years; not reasonable Also failed to make clear that any changes were unacceptable to him
Condonation Cases up to 7 months no condonation Employee safe to wait up to 3 months Waiting 4-6 months risky 7 months very risky
Changing Terms and Conditions of Employment If a proposed change would otherwise be a constructive dismissal, and failing agreement with the employee regarding the change, how can it be imposed? Question answered by Wronko v. Western Information Services (Ontario Court of Appeal)
Wronko v. Western Information Services Wronko employed by Western for 17 years; last 4 of which he was Vice-President of National Accounts and Marketing Employment agreement included a termination provision providing 2 years salary upon termination without cause
Wronko v. Western Information Services September 2002, Western s new president sent Wronko a new contract, reducing severance entitlement from 2 years to 30 weeks Wronko refused to sign new contract Western then imposed new term on 2 years notice Wronko responded by stating he would not be bound by the new provision, but did not take the position he had been constructively dismissed.
Wronko v. Western Information Services In September 2004, Western advised that new termination provision was in effect Wronko quit, and took the position he had been constructively dismissed
Wronko v. Western Information Services Though it seemed Western complied with Farber, the confusion was because Farber made it appear there were only two options: Accept the change, either expressly or implicitly through apparent acquiescence, in which case the employment would continue under the altered terms; or Reject the change and sue for damages if the employer persists in treating the employment relationship as subject to the varied term
Wronko v. Western Information Services Wronko shows there is a third possibility: If the employee says he will not accept the proposed variance, the onus is then on the employer to either accept the employee s refusal, in which case the employment relationship continues unvaried, or terminate the employment relationship, and offer reemployment on the new terms Leave to appeal to SCC dismissed Oct. 9, 2008
Proactive Strategies Employment contract Address future potential constructive dismissal Change work location, reduce compensation and benefits, assign to lower position, change reporting structure, remove or add duties Build flexibility into compensation and benefit plans Ensure employees are informed and have copies of documents
Proactive Strategies Ensure full and proper communication Do not ignore the document war Enter into new contract Failing agreement, give working notice of change Set yourself up for a mitigation defence
Questions?