Canada: Make Whole Remedies And Good Faith Crucial To Mitigation

A recent decision of the BC Court of Appeal provides a cautionary tale for BC employers seeking to remedy a potential wrongful dismissal.

In Fredrickson v. Newtech Dental Laboratory Inc., Leah Ann Fredrickson had worked for Newtech, a specialty dental laboratory, for about 8.5 years, when she took a leave of absence in connection with her husband’s illness and an accidental injury to her son. Newtech’s owner, Vince Ferbey, took issue with the manner in which Ms. Fredrickson took the leave and the effects on Newtech’s operations. When Ms. Fredrickson returned to work on July 20, 2011, Mr. Ferbey advised her that she was being laid off and gave her her Record of Employment.

Ms. Fredrickson considered that she had been dismissed and, on September 9, 2011, her counsel delivered that message to Newtech. Newtech responded through its counsel on September 23, 2011, directing Ms. Fredrickson to return to work on September 26, 2011, pursuant to the “lay off” and noting in a further letter on September 26 that, even if she had been wrongfully dismissed by Newtech, she had a duty to mitigate her damages and accept Newtech’s offer of re-employment. Ms. Fredrickson did not accept Newtech’s offer, but instead, on October 18, 2011, commenced an action for wrongful dismissal.

Prior to knowing about the action, on October 19, 2011, Newtech offered to re-employ Ms. Fredrickson, and offered to pay her unpaid wages from July 20 (the date of the “layoff”), until September 23, 2011 (the date she was directed to return to work on September 26). Newtech repeated this offer on three subsequent occasions, the final being on April 19, 2012. Ms. Fredrickson declined all offers on the basis that Newtech’s conduct since July 20, 2011, had broken the employment relationship and made it reasonable for her to decline re-employment in a small dental office. Aside from the nature of Newtech’s offer of re-employment, Mr. Ferbey had surreptitiously recorded two conversations with Ms. Fredrickson during their dispute and had discussed her employment situation with another employee, including that Ms. Fredrickson would be “too embarrassed to return to work” after her medical leave.

At trial, Newtech eventually conceded that Ms. Fredrickson had been terminated on July 20, 2011, not laid off. Accordingly, the only issue was damages, and in particular, whether Ms. Fredrickson had failed to meet her duty to mitigate when she declined Newtech’s offers of re-employment and payment of wages from July 20-September 23, 2011.

Newtech was initially successful, with the trial judge finding that Ms. Fredrickson had acted unreasonably in declining Newtech’s first offer of employment on September 23, 2011. Accordingly, she was only entitled to damages from the date of the termination to the date of Newtech’s offer.

The court of appeal ruled that the trial judge had erred regarding mitigation in two ways:

  1. First, by failing to give significance to the incomplete nature of Newtech’s offers of re-employment. When Newtech first offered to re-employ Ms. Fredrickson on September 23, 2011, it did so on the basis that Ms. Fredrickson was being “recalled” and, accordingly, did not provide Ms. Fredrickson with the wages she had not been paid since July 20, 2011, which were necessary to make Ms. Fredrickson “whole”. The lack of an offer of a “make whole” remedy that would put Ms. Fredrickson into the position she would have been in had Newtech not wrongfully dismissed her on July 20, 2011, got progressively worse with Newtech’s subsequent offers.
  2. Secondly, by “failing to reflect the intangible element of mutual trust…that flows like a river in the employment relationship”. The court of appeal discussed the integrity of the employment relationship and the inherent mutual trust, referring to the Supreme Court of Canada’s recent decision in Potter v. New Brunswick Legal Aid Services Commission in which the Court refers to the obligations of good faith between employees and employers. In Fredrickson, the court found that the surreptitious recording and subsequent use of conversations between Mr. Ferbey and Ms. Fredrickson and the breach of Ms. Fredrickson’s confidence when Mr. Ferbey discussed her employment situation with another employee had eroded the mutual trust and good faith at the heart of the employment relationship. This made it reasonable for Ms. Fredrickson to refuse Newtech’s offers of re-employment

In the end, the court of appeal set aside the mitigation finding and remitted the question of Ms. Fredrickson’s damages to the trial judge.

This case is instructive for employers in that, when there is a disagreement about decisions in the workplace (as the court of appeal held, “[t]he case is a story of initial misunderstanding and miscommunication”), employers must be cautious to undo the misunderstanding to its prior state. Offering re-employment that falls short of a ‘make whole’ remedy will be closely scrutinized and may make it reasonable for an employee to decline the offer, despite the employee’s duty to mitigate. Secondly, surreptitiously recording conversations with an employee and discussing their personal circumstances with other employees is never a good idea, particularly in a small workplace. This decision follows on recent decisions from the Supreme Court of Canada (including Potter, above, and Bhasin v. Hrynew) where the Court emphasizes the general obligations of good faith and honesty in contractual dealings, particularly in the employment context.

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