Canada: Playing With Fire – Constructive Dismissal And Mitigation

Last Updated: February 7 2019
Article by Devan Marr

In what can only be described as a Pyrrhic victory, a recent Ontario Superior Court summary judgment decision highlights the employment risks present in temporary lay-offs during a business downtown. This decision is a strong reminder that lay-offs are not an automatic contractual right and can trigger a constructive dismissal claim. This decision also confirms that employees must take offers of re-employment seriously when alleging constructive dismissal.

The facts of the case are straight forward and likely all too familiar to many small business owners. The plaintiff was a 53 year old Health & Safety Training Specialist employed with Strone Inc. for 23 years. Strone was an emergency restoration company that experienced an economic downturn in 2014. This caused permanent lay-offs in 2015.

On October 15, 2015 the employer temporarily laid off the plaintiff along with two other employees. As part of the temporary lay-off, the employer agreed to maintain the plaintiff’s benefits but asked him to return company property. They also asked the plaintiff to keep them updated on his availability in case they needed to recall him.

Also on October 15, the plaintiff advised Strone that he was available for work “as always”. He sent a similar e-mail on October 19, 2015 affirming his availability to work. The next day, Strone was retained to repair significant damage to a hotel. There was apparently some internal discussion of recalling the plaintiff given his particular expertise and the scope of project.

Before any recall occurred, the plaintiff retained counsel. On October 27, his lawyer informed Strone that they considered the temporary lay-off to constitute a constructive dismissal. At some point, Strone’s own counsel advised that there was a possibility he would be recalled shortly. The plaintiff’s counsel immediately wrote back advising that the plaintiff felt the relationship had broken down and that he would not be returning to work.

On November 10, Strone’s counsel sent a letter recalling the plaintiff to “active employment” as of November 16, 2015. This was followed up by e-mail on November 12, 2015 with no response. The plaintiff subsequently commenced the action alleging constructive dismissal. The plaintiff argued that there was no term in his contract of employment that allowed Strone to lay him off temporarily and that the offer of re-employment was a sham. He claimed for 24 months of pay in lieu of reasonable notice.

In addressing the constructive dismissal claim, Pollak J., agreed that the plaintiff had been constructively dismissed by the employer’s failure to provide him with work and compensation contrary to the fundamental terms of his employment. In very short reasons, Pollak J., found that the plaintiff’s alleged agreement to the lay-off or his understanding of the business difficulties had the effect of altering this significant term of employment.

The main battleground in this claim, as with many constructive dismissal claims, was whether the plaintiff had failed to mitigate his damages by refusing the offer to return to work. Reviewing the seminal case of Evans v. Teamsters, Local 31, Pollak J., confirmed that when assessing the reasonableness of a re-employment offer, one should look at whether the salary offered was the same, the working conditions were substantially similar, the work was not demeaning, and the relationships involved were not acrimonious. Most importantly, an employee was not obliged to accept re-employment in an atmosphere of hostility, embarrassment or humiliation.

Pollak J. concluded that the employer’s offer of re-employment was reasonable and should have been pursued by the plaintiff. He noted that the plaintiff had provided no compelling evidence that a return to work after 3.5 weeks was too embarrassing, humiliating and/or degrading.

Because of the plaintiff’s failure to mitigate his losses by accepting re-employment, his damages were capped at 3.5 weeks of pay in lieu of notice. For completeness, Pollak J., found the claimant would have been entitled to 18 months of pay in lieu of notice.

The Takeaways

While he was ultimately successful in proving he was constructively dismissed, the employee’s refusal to accept a return to work after a 3.5 week lay off resulted in the forfeiture of 17 additional months of notice. It is obvious that the judge did not accept the plaintiff’s bald statement that a return to work after 3.5 weeks would have been demeaning or embarrassing. Employees reviewing this decision should take note that their obligations to mitigate when faced with a constructive dismissal are the same, if not arguably more onerous, than those permanently dismissed. Absent concrete evidence of a hostile work environment, they may be obligated to accept an offer of re-employment.

Employers reviewing this decision should also take note that simple awareness of the on and off again nature of the business will be insufficient to read in a contractual term allowing temporary lay offs. Although not specifically mentioned, it is likely the plaintiff did not have a written contract of employment. In an age of increasing judicial scrutiny and legally savvy employees, it is essential that employers and employees sit down and set their agreements in writing to avoid the risk of misunderstandings and potential claims.

On a final note, and speaking generally, statutory notice and severance are not subject to the obligation to mitigate. I would argue that regardless of the plaintiff’s failure to mitigate, the finding of a constructive dismissal would have entitled the plaintiff to the minimum statutory notice of 8 weeks notice pay, and potentially 23 weeks of severance pay if the employer’s payroll was large enough.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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