February 26, 2012

Constructive Dismissal part 2: Everything Has Its Limits

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In our earlier article, Constructive Dismissal: A Tough Call for Employers, it was concluded that constructive dismissal, while still a source of concern for employers, was likely less of a threat than it is sometimes thought of. Employees placed in potential constructive dismissal suits must be very careful, or else they may find they have very limited recovery.

However, it appears that an employer in British Columbia has attempted to push the weaknesses of constructive dismissal to the extreme. In fact it appears to have tried to push the concept farther than it can reasonably bear.

In the BC Superior Court case Allen v. Ainsworth Lumber Company, 2011, the plaintiff employee, Allen, had a 15-month notice clause in his contract, which took effect if he was terminated without cause. Ainsworth, the employer, terminated the plaintiff and purported to provide him with 15 months of “working notice” in which he did not have to report to work. A replacement for the plaintiff was announced the day after his termination. The plaintiff found new employment after approximately eight months.

Among its arguments, the defendant employer attempted to use the doctrine of constructive dismissal for its own benefit arguing that the change in working conditions imposed on the plaintiff amounted to a constructive dismissal, and therefore it did not have to pay the entire 15-month notice period in the contract because the plaintiff had successfully mitigated at eight months.

The Court rejected this argument. It held:

The doctrine of constructive dismissal aims to prevent an employer unilaterally altering the terms or conditions of an employee’s employment in such a fundamental way that it is no longer the employment to which the employee agreed. The doctrine recognizes that in such a situation the employer has effectively repudiated the original employment agreement, giving the employee the rights that follow from dismissal if the employee chooses to accept the agreement as terminated. The doctrine of constructive dismissal thus serves to protect employees from the unilateral actions of employers who purport to maintain the employment agreement, but do so on terms that the agreement will not reasonably bear. See, generally, Farber v. Royal Trust Co., [1997] 1 S.C.R. 846 at paras. 24-36.

Here, by contrast, the employer seeks to gain advantage from the doctrine and its legal consequences. Ainsworth seeks to rely on the doctrine to give a legal character to its own conduct that is different from the character it attempted to give to it at the time. As Mr. Press emphasized forcefully in his submissions in support of Ainsworth’s primary position, Ainsworth in its October 14, 2009, letter clearly and unequivocally professed to give Mr. Allen 15 months’ notice of termination, not to dismiss him as of that time.

Along with the novelty of the employer’s attempt, the case is also instructive as it demonstrates the difference between contractual and common-law notice periods.
The plaintiff in this case was entitled to his 15 months of notice as a result of the contract of employment. As there was no mitigation clause in the contract, the employer was obligated to pay the 15 months regardless of whether the plaintiff found new employment before 15 months passed (i.e., mitigated).

The only way for the employer to have potentially lessened its losses in this case would have been to provide a “true working notice” where it would have required the plaintiff to actually render services in the 15-month notice period. In this way, it would have at least received some value for the money it paid out.

As such, the case highlights the importance of turning your mind to the issue of mitigation at the time of the drafting of the contract. Employers are well-advised to make sure that where a senior employee has a significant notice period written into his or her contract that they also write in a mitigation clause in order to limit their damages should the relationship terminate.

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.