January 23, 2012

Constructive Dismissal: A Tough Call for Employees

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Constructive dismissals are something that most employers are aware of, but many may not be aware that constructive dismissals are in fact very difficult cases for employees to win. This is illustrated by a recent case out of Nova Scotia, Gillis v. Sobeys Group Incorporated 2011 NSSC 443.

Constructive dismissals are distinct from a regular form of dismissal in that they do not actually involve a dismissal per se. Rather, constructive dismissal refers to a situation where an employer unilaterally makes a substantial change to an essential term of an employee’s contract of employment (as per Farber v. Royal Trust Company [1997] 1 S.C.R. 846). The substantial change is thus treated as the employer no longer holding up its end of the employment contract and thus the contract is breached and the employee is considered to be dismissed.

Where this happens the employee may bring a suit for the notice period that he should have been entitled to prior to the breach of contract.

The most common issue in a constructive dismissal case is whether the unilateral change to the employment contract is “substantial” enough to justify a claim that the contract has been breached. In the Gillis case, the Court found that the change was not substantial enough.

The Plaintiff Gillis had been employed by Sobeys for approximately 28 years. Sobeys decided that it needed to realign the department in which Ms. Gillis worked (marketing) and therefore wanted to transfer her to a different position. Ms. Gillis refused the transfer and claimed constructive dismissal.

The Court found that one of the positions that was offered to Ms. Gillis, that of Assistant Store Manager, was not a demotion, and therefore was not significant enough of a change to be considered a constructive dismissal. Notably although the transfer involved a reduction in salary, also included a one time lump sum payment to offset the change in salary over what could be considered a notice period.

Of further concern for plaintiffs in constructive dismissal cases is the issue of mitigation. In Gillis, the Court found that even if it was in error on the issue of constructive dismissal, Gillis still would have been under an obligation to mitigate and therefore she would have been obligated to take the transfer position while she sought new work. As she did not do so, she had also failed in her duty to mitigate.

This has been the law on mitigation since the recent decision of Evans v. Teamster Local Union No. 31 [2008] 1 S.C.R. 661 where the Court found that unless the employee would be working in an atmosphere of hostility, embarrassment or humiliation, they must take a proffered position, even if it may be a constructive dismissal, simply as part of the duty to mitigate.

Accordingly, an employee faced with a constructive dismissal situation has two significant hurdles to face:

  1. The employee must “roll the dice” on whether the change is significant enough to meet the definition of a “substantial” change.
  2. The employee runs the risk that by not staying in the changed position (in this case the offered transfer) that he or she will be found to have failed to mitigate.

Accordingly, the take away for employers from this case is that constructive dismissals do create significant hurdles for employees, and the employer may therefore have a number of considerable options in defence.

On the other side of the equation is the question of how to avoid being dragged into such litigation in the first place.

In Gillis, the Court found that Ms. Gillis’ reaction whereby she simply refused the transfer and did not return to Sobeys was in part an emotional response based on the fact that the same letter which indicated the transfer also raised performance issues. The Court found that Gillis’ motional response to these performance issues blinded her from assessing the events around the transfer.

(The Court also accepted Sobeys’ other argument that Ms. Gillis had resigned her position based on her response to the performance issues in the letter.)

Sobeys gave evidence at the trial that they valued their relationship with Gillis and had wished that she could have stayed on. Accordingly another take away for employers from this case is to be careful in the manner in which performance issues are raised with employees, particularly when the employees are long serving and are also being faced with significant changes to their employment situations.

NOTE: Click to read Constructive Dismissal part 2: Everything Has Its Limits

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.