Want to change an employee's terms or conditions of employment? It's not as easy as it once was.
Depending on the nature of the change, it may amount to constructive dismissal. If it does amount to constructive dismissal, simply providing notice of the change may not be sufficient - as the Court of Appeal taught us in Wronko v. Western Inventory Service Ltd. (PDF). To make matters worse, contrary to what was once expected, an employee may not even need to quit to sue for constructive dismissal.
Not only do employers need to keep these developments in mind when changing an employee's terms or conditions of employment, employers must also be clear with employees if they want to argue that the employee failed to mitigate his or her damages by not accepting the change. The Ontario Court of Appeal set out some clear rules in its March 7, 2014 decision in Farwell v. Citair, Inc. (General Coach Canada) (PDF). Here, the Court clarifies the steps that an employer must take to successfully argue a failure to mitigate in the event that an employee refuses to accept a new role and then claims constructive dismissal.
Mr. Farwell was a 58 year old manager with 38 years of service with General Coach. As part of a corporate restructuring, Mr. Farwell was transferred from his former position of Operations Manager/Vice President of Operations to the position of Purchasing Manager. Mr. Farwell did not want the Purchasing Manager job. He had done the Purchasing Manager job many years before and, while the salary and working conditions would have been almost the same, there would have been a likely reduction in his bonus.
The trial judge ruled that the transfer involved a significant change in responsibilities and duties. The change in title reflected Mr. Farwell's diminished role within the company. And that resulted in a significant loss of status and prestige.
The Court of Appeal supported the trial judge's decision that there was a constructive dismissal and that the reasonable notice period was 24 months.
The Real Issue - Mitigation
The real issue in this case that we believe is important for employers to note arose out of the argument concerning mitigation. General Coach argued that Mr. Farwell's legal duty to mitigate his damages meant that he was obliged to accept the job of Purchasing Manager during the period of working notice. General Coach claimed that there was nothing embarrassing or humiliating about the new role.
The trial judge disagreed, though, and decided that to force Mr. Farwell to accept the new position which he had held years before would be humiliating and embarrassing for him. She found that to require him to return to the company to mitigate his losses would be unreasonable.
The Court of Appeal didn't like the employer's argument. General Coach's argument presupposed that the employer had offered the employee a chance to mitigate his damages by returning to work. The Court of Appeal ruled that in order to trigger this form of mitigation duty, the employer was obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he had refused to accept the position of Purchasing Manager and told the company that he was treating the reorganization as a constructive dismissal.
In this case, the Court of Appeal found, there was no evidence before it that the employer had extended any such offer to Mr. Farwell. As there had been no offer made, Mr. Farwell did not breach his mitigation obligation by not returning to work. Accordingly, the Court of Appeal agreed with the trial judge's award of 24 months' pay in lieu of notice.
Lessons for Employers
If an employee claims that he or she has been constructively dismissed after the employer has moved the employee to a new role, or after the employer has changed the employee's existing role in some fashion, it is incumbent on the employer to actually extend an offer to the employee in question to work out the notice period in the new position, if it wants to make a mitigation argument. If the employee refuses the offer to work through the notice period, the employer may argue, amongst other arguments, that the employee has failed to mitigate his or her damages. Without an offer, though, this argument cannot be made. This clarification by the Court of Appeal will be important to employers across the country if they are contemplating changes of significance to the terms of an employee's employment.