Canada: Employee Relief Causes Employer Grief: The Ability To Perform Employment-Related Duties Is An Integral Part Of An Employment Contract

Last Updated: October 9 2013
Article by Leah Anaka

Recently, two employers who provided notice of termination, and at the same time relieved employees of their duties, were held instead to have at that time terminated those employees, which lead to financial consequences for both employers.  In Alberta, an employer's attempt to avoid "callous and insensitive treatment" by providing notice that it would not be renewing an employee's  contract resulted in a finding that it had instead constructively dismissed the employee and was therefore liable to pay him a year's salary in accordance with his contract.  In BC, the Court of Appeal held that an employer who gave 15 months' "working notice" had in effect terminated the employment contract when it relieved the employee of his duties, and therefore was liable to pay severance in accordance with an employment contact that did not impose a duty to mitigate.  

Term employee relieved from duties was constructively dismissed

An employee not appointed to a subsequent fixed-term contract sued his employer for constructive dismissal in Thompson v Cardel Homes Limited Partnership In September 2008,the plaintiffGeoffrey Thompson was hired as a full-time regional president with the defendant employer Cardel Homes Limited Partnership.  Thompson's two-year, written contract stated that in the event Cardel failed to renew his contract, or terminated him without cause, Cardel would pay Thompson one year's salary.  Cardel and Thompson entered into a subsequent agreement in September 2010, for a term of 13 months, reappointing Thompson to his position as a full-time regional president.  Under the second agreement, Thompson's compensation included a fixed yearly salary equal to $285,000, and participation in a profit sharing plan.  This agreement did not provide for payment of one year's salary in the event of non-renewal, but did provide for severance equal to of twelve months' base salary in the event of termination without cause.

One month prior to the expiration of the second agreement, Cardel's president and CEO met with Thompson and provided him with a letter that advised that Cardel would not be entering into a third agreement, and that it did not require Thompson to attend work for the remainder of the term of the second agreement.  The letter stated that Thompson would be paid regular earned salary, plus accrued vacation and any profit share earned until the date of termination of the agreement.  Cardel also instructed Thompson to return his card key, building keys, and computer password.  During the meeting, Thompson was advised he no longer had responsibilities at Cardel and was asked to clean out his office.  Thompson left Cardel's premises as requested and performed no further services for Cardel.

Thompson took the position that Cardel, by relieving him of his duties one month prior to the expiration of the second agreement, had terminated his employment.  He argued that Cardel's actions constituted a substantial change to his duties and status, repudiating Cardel's essential obligations imposed by the agreement, and resulted in his constructive dismissal.

Cardel argued that it did not sever its relationship with Thompson, and continued to provide him regular pay, profit sharing and benefits until the expiry date of the contract.  According to Cardel, it was not under an obligation to provide Thompson work, and in fact did him a favour by allowing him time to prepare for new employment. 

The Alberta Court of Queen's Bench agreed with Thompson, and found that Cardel had fundamentally breached the second agreement.  The repudiation of the second agreement constituted constructive dismissal, or a termination of Thompson's employment without cause, and therefore Thompson was entitled to the damages as contracted for equal to 12 months' salary.  The Court stated that the question to be asked is as follows:  would a reasonable person in Thompson's position as regional president have felt that an essential term of his employment was being substantially changed when he was relieved of his duties one month before the end of his contract, and was asked to return his keys, passwords, and leave the building?

Employee relieved from duties was terminated, not given working notice

In Allen v. Ainsworth Lumber Co. Ltd., the BC Court of Appeal held that an employer who relieved an employee from duties in a manner similar to that outlined in Cardel repudiated the employment contract when it ceased to make severance payments upon the employee's employment elsewhere.  The BC Court rejected the employer's argument that its repudiation of the employment contract was accepted by the employee.

In October 2009, the appellant Ainsworth Lumber Co. Ltd advised its chief financial officer, the respondent Robert Allen, that in 15 months his employment would be terminated, and that Allen would no longer be required to report to work. Allen was asked to surrender his access card and his keys, and was told to arrange removal of his personal belongings from his office, and was escorted from the building.  Allen did not return.  The following day, Ainsworth announced Allen had "left the company", and that Allen's replacement would commence work about three weeks later. 

Allen and Ainsworth had signed an agreement in May 2008 which stated that in the event Allen was terminated without cause, Allen would be provided 15 months' notice or pay in lieu.  Ainsworth continued to pay salary and benefits to Allen monthly until June 2010, when Allen obtained new employment that paid more than his salary from Ainsworth. Ainsworth stopped its payments on the basis that Allen had mitigated any further damages arising from his dismissal. Allen disagreed, and sued for breach of contract, alleging Ainsworth had dismissed him in October 2009, he had no duty to mitigate, and he was entitled to the balance of 15 months' "pay in lieu" as a debt due under his employment agreement.  Ainsworth took the position that in October 2009 it had placed Allen on 15 months' working notice, and the reassignment of his duties at that time constituted repudiation, rather than termination, of his employment contract. It contended that, when Allen accepted work with another employer, he accepted the repudiation, and also fulfilled his duty to mitigate, which relieved Ainsworth from any further financial obligations related to his dismissal.

At trial, the Court held that Ainsworth had dismissed Allen in October 2009 and, under his employment agreement, he was entitled to 15 months' pay and benefits in lieu of notice. The trial judge rejected Ainsworth's argument that it had simply changed Allen's duties to search for new employment, and stated that nothing in the evidence suggested that Allen had accepted the revocation of his duties and his exclusion from involvement in the company, and that the circumstances, when viewed as a whole, "amounted unmistakeably to immediate termination".       The trial judge held that working notice was a "guise for actual termination", and decided it was unnecessary to resort to the doctrine of constructive dismissal.  Ainsworth appealed. 

The BC Court of Appeal denied the appeal, and stated that Ainsworth was unable to overcome the trial judge's finding that Ainsworth's conduct went beyond repudiation by simply changing Allen's employment duties. Ainsworth's actions instead constituted a wholesale termination of the employment relationship, which entitled Allen to 15 months' pay in lieu of notice, in accordance with his employment agreement.   If the trial judge had held instead that Ainsworth had repudiated the agreement, like the plaintiff had in Cardel, the Court of Appeal seemed to agree with Ainsworth that Allen then would have been able to sue for wrongful dismissal, and been obligated to mitigate his damages.

Like the Alberta Court in Cardel, the BC Court stated that the test as to whether an employment relationship has terminated is objective:  was notice of termination specifically and unequivocally communicated to the employee in such a manner that a reasonable person would clearly understand the employment contract was at an end?  The Court of Appeal also disagreed with Ainsworth's suggestion that Allen's decision to commence a job search and accept continuing payments of salary and benefits demonstrated he had accepted his changed employment duties.  The employment agreement did not impose a duty to mitigate, and therefore Ainsworth was required to pay Allen the entire 15 months' salary.

Don't let me down easy:  a matter of substance over form

In both Cardel and Ainsworth, the employer's decision to relieve an employee from his duties was held to constitute immediate termination.  In Cardel, the employee sued his employer alleging constructive dismissal and the Court found had been so dismissed.  In Ainsworth, an employee sued his employer for breaching contractual notice provisions, and Court held that since the employer's actions constituted termination without cause, the notice provisions had been triggered.

What these decisions make clear is that an employee's ability to perform employment-related duties, and the exercise of employment-related powers, are integral parts of an employment contract, particularly at the executive level.  To determine whether being relieved from one's duties amounts to termination of employment depends on whether such relief of duties amounts to a substantial change in the employee's exercise of power and control.  The test is objective: would a reasonable person understand the employment contract was at an end?  Consider:

  •  Has the employee been banished from the premises? 
  • Will the employee continue to play a role with the company?
  • Has the employee's replacement been hired?
  • Will the employee's reputation suffer?  Will the employee be presenting him or herself to prospective employers as an unemployed candidate?
  • Will the employee continue to receive benefits during the notice period? 

A court will consider all circumstances surrounding the termination of an employee.  An employer's intention in giving notice of termination is but one factor to consider in deciding whether the totality of the circumstances support a reasonable belief that the employment relationship had ended.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.