Constructive dismissal

Changing an employee’s job

By Jeremy Warning


Kenneth Farwell was a long-serving employee of General Coach Canada – a name through which Citair, Inc. carried on business. At the relevant time, he had worked for the company for approximately 38 years and was 58-years-old. He also held the position of Operations Manager/Vice-President of Operations. However, in May 2009, as part of a reorganization, the company transferred Farwell from the VP Operations position to the position of Purchasing Manager.

The new position represented a significant change in Farwell’s responsibilities and duties. It also represented a diminished role in the company and, correspondingly, a significant loss of status and prestige. Indeed, the evidence established that, if the change were implemented, Farwell would be subordinate and reporting to one of his previous subordinates.

The reorganization by the company was motivated by economic considerations and not by any ill will towards Farwell. The company had recently adopted a new product focus in which Farwell was not the expert — one of his subordinates was — and the restructuring of management personnel was a consequence of this altered business model. The change was not intended to stigmatize Farwell.

When presented with the change, Farwell took the position he had been constructively dismissed by the company and he sued for damages on the basis of having been wrongfully dismissed.

A constructive dismissal occurs when the employer unilaterally changes a fundamental term or condition of employment. The Supreme Court of Canada has confirmed that a constructive dismissal is described as follows:

“A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign, which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.”

When a constructive dismissal occurs, there are, essentially, three options for an employee faced with the unilateral change to a term or condition of his or her employment. They were described by the Ontario Court of Appeal in Wronko v. Western Inventory Service Ltd., 2008 ONCA 327 (CanLII), as:

  1. Acquiescence:  The employee could accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue on the altered terms;
  2. Constructive dismissal:  The employee could reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term. This would be a constructive dismissal and, assuming it applies, the employee would be subject to his or her duty to mitigate damages; or
  3. Refusal of amended terms:  The employee could make it clear to the employer that he or she is rejecting the new term or terms. The employer may respond to this rejection by terminating the employee with proper notice and offering re-employment on the new terms. If the employer does not take this course and permits the employee to continue to fulfill his or her job requirements, then the employee is entitled to insist on adherence to the terms of the original contract.

In Farwell v. Citair Inc., Farwell chose the second option. In response, the company argued that Farwell had failed to mitigate his damages by continuing to work for the company during the notice period. It was the company’s position that the salary and working conditions would have been largely the same with the only difference being a likely reduction in his bonus. The company also argued that there would have been no stigma had Farwell accepted the job during his notice period because he was well liked and respected by his colleagues and he had previously excelled and commanded respect as Purchasing Manager.

The company relied on the Supreme Court of Canada decision in Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (CanLII), which held that an employee will be expected to return to work for the dismissing employer where a reasonable person would accept such opportunity. The determination of whether it would be reasonable to return to work for the dismissing employer will consider a number of factors.

An employee will be expected to return to work for the employer where “the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious (Mifsud v. MacMillan Bathurst Inc., 1989 CanLII 260 (Ont. C.A.)). An employee is not expected to return to a workplace where there is “an atmosphere of hostility, embarrassment or humiliation.”

The trial court found that the change from VP Operations to Purchasing Manager was a constructive dismissal. After considering the relevant factors, the trial court found that reasonable notice for Farwell was a period of 24 months. The trial court rejected the company’s argument that, by not accepting the job of Purchasing Manager, Mr. Farwell had failed in his duty to mitigate his damages. The trial court held that it would have been “humiliating” and “embarrassing” for Farwell to have worked in the role of Purchasing Manager.

The company appealed the finding alleging that the trial court had applied a subjective assessment of the mitigation argument rather than the objective approach required by law. The Court of Appeal indicated that the position of the company was tenable.

“There may well be merit in the appellant’s argument that he trial judge took a subjective approach in assessing “work atmosphere, stigma and loss of dignity” for the purposes of mitigation, rather than the required objective approach. There may also be merit in the argument that the circumstances here would support the imposition of an obligation on Mr. Farwell to mitigate by working through the notice period.”

However, the Court of Appeal dismissed the appeal after finding an “insurmountable” obstacle to the company’s position. It held that the company had not offered Farwell a clear opportunity to work out the notice period after Farwell had refused the Purchasing Manager position and asserted constructive dismissal. The consequence of this finding was that Farwell was not found to have failed in his obligation to mitigate his damages.

Farwell v. Citair, Inc. confirms that an employer’s unilateral change to the terms and conditions of employment can constitute constructive dismissal. It also confirms that, if the proper circumstances exist, the courts will require a constructively dismissed employee to continue to work for the dismissing employer. However, employers should be mindful that it will not always be reasonable for a constructively dismissed employee to mitigate his or her damages by continuing to work for the employer. The courts will not require an employee to continue to work where there are acrimonious personal relationships or if there is an atmosphere of embarrassment or humiliation.

Further, the principles in Farwell v. Citair, Inc. and Evans v. Teamsters Local Union No. 31 will only apply if the employee has a duty to mitigate his or her damages. An employee may not have a duty of mitigation if his or her employment agreement sets out a specific entitlement on termination but does not specifically make that entitlement subject to mitigation (Bowes v. Goss Power Products Ltd., 2012 ONCA 425 (CanLII)).

The Farwell v. Citair, Inc. case indicates that the courts will not infer or imply that an employee can mitigate his or her damages by continuing to work for the dismissing employer after alleging a constructive dismissal. Instead, the courts will require an employer to provide a clear offer that occurs after the employee has alleged the constructive dismissal.

As a result, an employer who wishes to offer a constructively-dismissed employee the opportunity to mitigate his or her damages, should ensure that there is an explicit offer made to the employee after the employee has refused to accept a change and alleged a constructive dismissal. The offer should be made in writing and should define which position — the altered position or a continuation of employment under the previous terms — is being offered and that the opportunity is being offered to assist the employee in mitigating his or her damages.


Jeremy Warning practices occupational health and safety, employment and labour law with Mathews, Dinsdale & Clark LLP in Toronto.       


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