Wins Wrongful Dismissal: But Fails to Mitigate

In another blow to dismissed employees. a B.C. court has reduced the wrongful dismissal damages that would have been owing to an employee after the employee failed to return to work when “recalled.”  This follows a number of decisions across Canada including cases in Ontario, B.C. and even at the Supreme Court.  It has become quite clear that if an employee refuses to return to work when asked to return, even after being wrongfully dismissed, it may be very risky for the employee to refuse.

In the case of Hooge v. Gillwood Remanufacturing Inc., the plaintiff was a 36 year employee, working as a production supervisor at the time of dismissal.  He was put on a “lay off” by his employer without any advance notice or pay.  The defendant company claimed that it had the right to “lay off” the employee under the B.C. Employment Standards Act.  The plaintiff alleged that he had been dismissed and sued for wrongful dismissal.  One week after he filed his lawsuit, the employer purported to “recall” him back to work.

At trial, the B.C. Supreme Court held that the employee had in fact been constructively dismissed. The plaintiff had not had a written employment contract in place.  When he was put on a lay off, he was told that it was “indefinite” and that there were no plans to recall him.  He was given an ROE that said “shortage of work.”  The B.C. court agreed with the plaintiff that there was no term of his employment that would have permitted a “lay off” without pay after all of these years of employment.  He was, in fact, constructively dismissed and was entitled to eighteen months’ compensation.

However, the Court proceeded to look at the issue of mitigation.  “The law is clear that in certain circumstances an employee who declines an offer of re-employment from the same employer after having been dismissed, whether actually or constructively, may be found to failed to mitigate his damages, and have any award reduced on account of such failure to mitigate.”  As long as it would have been “reasonable” in all of the circumstances for the plaintiff to return to work, he or she may be obligated to do so.  The court discussed Evans. v. Teamsters Local Union No. 31  as well as other B.C. cases including Davies v. Fraser Collection Services Ltd. 2008 B.C.S.C. 942 and Besse v. Dr. A.S. Machner Inc. 2009 BCSC 1216.

Ultimately, the court concluded that the evidence did not establish acrimony, mistreatment, belittling, embarrassing actions or undermining of authority in the workplace.  The court concluded that the plaintiff should have returned to the same position, on the same terms and conditions, at the same rate of pay.  Here is the court’s reasoning:

“It seems to me that an employer who has laid-off an employee, or wrongfully terminated an employee without due notice, may very well come to the conclusion, particularly with the benefit of legal advice that its actions constituted a wrongful dismissal and may seek to mitigate its own exposure to the payment of damages by offering to re-hire the employee.”

Here, the court held that the plaintiff should have returned to work.

Fortunately, in this case, all was not lost for the plaintiff.  The defendant locked out its unionized employees and ceased operations approximately seven months after purporting to recall the plaintiff.  The court held that the plaintiff would not have been paid during the lock-out, so he would not have been able to mitigate his damages during that time period.  Nevertheless, he was docked 7 1/2 months’ pay for the time period during which he would have been able to work if he had returned to work when recalled.

This case, from a B.C. perspective, reinforces the interpretation of Evans that has become the law across Canada.  Employees who are fired, laid-off or otherwise dismissed – and then offered a return to work – even after they file a lawsuit, must be very careful in deciding how to answer the employer’s offer.  Refusing to return to work and then continuing a lawsuit can be very costly.

There is something to be said for the notion that employers might have made a mistake and should be entitled to reverse a decision and have an employee come back to work.  After all, in the unionized context, an employee can be reinstated.

However, more often than not, this type of case will simply be used by a range of employers looking to play games.  Employers can try to “lay off” employees without offering anything.  Then, if the employee sues, they can “recall” the employee.  This gives employers a way to try firing someone while minimizing the risk of owing any severance.  It seems to open up the door to all kinds of abuses by the types of employers that might choose to act unethically.  Certainly, there are situations in which employers may have a good faith “change of heart” or are otherwise justified in changing their minds and reversing a decision to dismiss an employee.

But that does not necessarily seem to be the case in many of the situations I see.  This line of case law creates uncertainty, economic and emotional stress for employees, and also makes it difficult to settle some cases reasonably, both from an employee and employer perspective.  Nevertheless, employees who ignore these decisions may be making a very costly mistake.

 

 

Dismissed Employees Must Return To Work if Recalled

Last year, the Ontario Superior Court held that a wrongfully dismissed employee may be required to go back to work if recalled by his or her employer.  I discussed that case here.

This past week, the Ontario Court of Appeal upheld the trial court decision and dismissed the appeal in Chevalier v. Active Tire & Auto Centre.

The Ontario Court of Appeal acknowledged that the plaintiff had been wrongfully dismissed when he was improperly put on a “lay-off.”  The  lay off came about after the employer tried to performance manage the employee before it put him on lay-off.

The plaintiff sued right away for constructive dismissal after being put on lay off.   Right after he began his lawsuit, the employer recalled him to work.  He refused to return and took the case to trial, arguing that the workplace had become “poisoned.”

However, at trial, the Ontario Superior Court held that there was no “demeaning, objectionable or retributory conduct” by the employer and that the constructively dismissed employee should have returned to work.

The Ontario Court of Appeal has upheld this decision.  In doing so, it has reinforced the idea that when an employer tries to implement a performance improvement plan, this will not necessarily create a poisoned work atmosphere.  But more importantly, the Court of Appeal has reinforced the Supreme Court of Canada jurisprudence in Evans v. Teamsters Local Union 31 which states that wrongfully dismissed employees may be required to return to work if recalled by their employers.  This can apply even after the employee files a lawsuit.  Failing to return to work can lead to a finding of “failure to mitigate damages.”  The dismissed employee can lose the case completely in these circumstances.

Dismissed employees who are recalled to work will need to consider the recall notice very carefully.  Continuing on with a lawsuit after an employer purports to call the employee back to work can be risky and ultimately, very costly.

 

 

Severance Packages and “Clawback” Provisions

In wrongful dismissal situations, many employers provide dismissed employees with severance packages that consist of a salary continuation.  Of course employees would usually prefer to be paid a lump sum, but usually, they are just not entitled to a lump sum under Canadian law.  Dismissed employees are entitled to be paid the minimum amounts under the Ontario Employment Standards Act, 2000, which include termination and severance.  The rest of the damages that they are owed are paid “in lieu of” reasonable notice.  This means that dismissed employees are only entitled to the payments, strictly speaking, if they have not found other work.  If they do find work and they have not yet settled with their former employers, the employers are entitled to credit for any amounts earned by the former employee during the notice period.

Most employers (and employees) do not want to wait and see how long it might take to find other work.  They want things resolved and out of the way.  So employers will often provide a salary continuance arrangement that provides some incentive for the employee to look for work and find a new position.  Usually, it is 50% of the remaining severance amount that they might have been paid. This is considered a reasonable provision and many employers will refuse to delete these clauses.  Nevertheless, most employees view these incentive payments as a “clawback” on the amounts that they are “owed” and become very upset with these provisions.  Some employers simply are very insistent on including these provisions as part of any severance arrangement.

Nevertheless and with that in mind – here are a few things you can consider when faced with a salary continuance proposal:

1.  The Length of the Notice/Severance Period:  Just because an employer has chosen some arbitrary number as the number of weeks or months that it will provide as a notice and/or severance period, that number may not be written in stone.  It may be quite flexible.  Sometimes employers will low-ball employees, hoping that they do not take any further steps.  Employees are often more likely to get the notice period increased than to get the “clawback” removed.  Many employers will increase proposed severance packages after receiving a letter from legal counsel.

2. Definition of Mitigation:  Some employers will state that the 50% payout will be triggered if the employee finds any work – even part time, consulting or temporary.  Empoyers are often willing to negotiate changes to these clauses so that the 50% will only come into effect if the employee has found a reasonably comparable employment or self-employment opportunity.

3.  What’s Included?:  Sometimes employers will offer a salary continuation on the basis of base salary alone.  Employees are entitled to be provided with benefits continuation, pension contributions, bonuses and other amounts that they would have earned if they had continued to be employed – even the severance arrangement is a salary continuation package.

4.  Other Items:  Employees should be able to get some other items included in their severance packages – like outplacement assistance through a decent agency and reasonable legal fees to have a package reviewed.  As well, some employers will provide a helpful reference letter though they cannot really be forced to do so.

The items listed above are items that employers will often consider changing, adjusting or adding.

It is fair to point out that, despite anything I have said above, some employers will be open to removing the salary continuation provision and paying out a lump sum.  They will usually want some concession in exchange – for example a lower overall amount or the agreement not to pay some of the “extra items” listed above.  But it is often  worth trying.

Other employers will not budge on anything and will tell employees to take the package or bring a lawsuit.  Employees then have to make a decision as to whether it is worthwhile to start a legal claim.  This can be a difficult decision, especially since neither the employer, the dismissed employee or the lawyer know how long it might take the employee to find new employment.

Nevertheless, in situations where employers have provided low-ball offers and are not willing to budge initially, dismissed employees will often come out ahead by proceeding with a Statement of Claim (i.e. filing a lawsuit in court).

 

Non-Competition Clause Can Increase Wrongful Dismissal Damages Award

Will a court award extra damages in a wrongful case where the employee is subject to a non-competition clause?  A recent Ontario case held that this would be entirely reasonable.

The case of Dimmer v. MMV Financial (2012 ONSC 7257) is a wrongful dismissal case involving a 50 year old senior vice president.  The plaintiff had been recruited by a corporate search firm and was employed for just under four years.  At the time he joined the company, he signed a one year non-competition agreement.  When he was dismissed on a without cause basis almost four years later, he abided by the non-competition agreement and was unable to find alternate employment for about a year.   At trial, he was awarded one year’s compensation, including compensation for his average historical bonus and his car allowance.

The defendant tried to argue that Mr. Dimmer had failed to mitigate his damages properly and had failed to conduct a sufficient job search.  But the Court pointed to the non-competition agreement and noted the difficulty that the plaintiff would have finding work while subjec to the agreement.  Moreover, the defendant was unable to demonstrate that there were available positions that the plaintiff could have obtained if he had taken different steps in the course of his mitigation efforts.

The Court held that the plaintiff was entitled to twelve months’ compensation, in part, because of the signficant level of responsbility, the high income level and the senior nature of the position that that plaintiff held.  In the circumstances, twelve months’ compensation was appropriate for a four year senior vice president.

Although this case does not address a large number of ground breaking legal principles, there are two interesting points that we can take from the decision:

1.  Senior executives will be entitled to significant notice periods even with relatively short service.  A one year notice period for a three to four year senior executive is within the reasonable range, even if it is at the higher end.

2. Courts may be willing to take into account draconian non-competition agreements when assessing notice.  For employers who choose to try to impose unreasonable non-competition agreements on their employees, they may wind up facing lengthier notice periods after dismissal.  Employees will not be required to try to get out of the non-competition agreement as part of reasonable mitigation efforts.

This reliance by the Court on a non-competition agreement in assessing notice is a useful step for plaintiffs.  In my view, it still does not go far enough.  To really level the playing field, courts should be willing to award damages for “loss of opportunity” where an employer has imposed an unreasonable non-competition agreement.  This would further ensure that employers make every effort to keep post-employment restrictions as narrow as possible to protect their reasonable proprietary interests.

For now, dismissed employees must choose between abiding by the agreement, ignoring it and facing litigation or commencing costly legal proceedings to obtain a court ruling on the enforceability of the agreement.  None of these steps are wholly satisfactory.  This recent Dimmer case provides employees with some comfort that they may be entitled to a lengthier notice period if they abide by an imposed non-competition agreement.

 

 

 

Wrongful Dismissal: Supervisor awarded 20 Months

When dismissing large numbers of employees, employers use widely different strategies.  Some employers choose to provide relatively fair severance proposals, negotiate if necessary, and minimize their legal entanglements.  Other employers choose to offer low-end severance arrangements and fight vigorously over any improvements to the severance packages they have offered.  While employer-side legal counsel certainly benefit when employers use the latter strategy, their employer clients do not always come out ahead, even with the costs saving that they might achieve by convincing some employees to accept low ball offers.

One employer that used this latter strategy, seemingly to the extreme, was Canac Kitchens, a Division of Kohler Ltd.  After closing its manufacturing operations in Canada in 2008, it fought with its former employees  tooth and nail over appropriate severance awards in a number of wrongful dismissal cases.  It took many of these cases all the way to trial and wound up with numerous reported court decisions, most, if not all of them, ruling against Canac’s position.

One of the wrongful dismissal cases from 2012 involved Washington Olivares, a shipping supervisor, who had been with Canac for 24 years.  At the time of his dismissal he was 48 years old, earning approximately $93,000.  When he could not resolve his dispute with Canac, he brought a summary judgment motion and was awarded 20 months’ compensation.  A few issues were decided in this case that could be helpful to other dismissed employees:

1.  Notice:  Justice Lederman of the Ontario Superior Court held that a long service employee is entitled to a lengthy notice period, even if he was not in an upper management role.  In coming to this conclusion, he relied on the decision of the Ontario Court of Appeal in DiTomaso v. Crown Metal Packaging, which I wrote about last year.

2.  Overtime Pay: The Court held that if an employee was routinely earning overtime pay before being dismissed, the employee will be entitled to common law severance pay on the basis of average overall earnings, including overtime pay, even if the employer can show that overtime pay was declining or that it may not have paid overtime pay in the future.

3. Mitigation:  The Court also clarified that any money earned by a dismissed employee during the statutory notice period (the first 8 weeks, for an employee with at least 8 years of service) and the statutory severance period (the next period of up to 26 weeks, depending on length of service) will NOT be deducted from the employee’s overall settlement.

4. Benefits:  The Court also held that, in assessing wrongful dismissal damages, employees are entitled to the full value of an employer’s monthly cost of employee benefits, even if the employee did not use them all while employed.

Essentially, it appears that Mr. Olivares won each of these disputes with Canac.  As well, he was awarded legal costs of $10,500.  The amount is not huge since the litigation was conducted as a summary judgment motion with no cross examinations or other procedural steps.

I was not involved in this wrongful dismissal case and I am not aware of what kinds of offers the parties may have exchanged before the hearing.

However, in many of these wrongful dismissal cases, employers can achieve a much better result by settling out of court and minimizing the legal fees that they may have had to pay.  The flip side is that if employers make reasonable offers to settle before trials or hearings, it will become much riskier for dismissed employees to proceed with litigation since they may face an award of legal costs if the employer does better than its settlement position in court.

Very few wrongful dismissal cases actually wind up going to trial, which is probably a good thing for most employers and their dismissed employees.  The fact that Canac now has so many reported decisions, most of them decided against Canac, suggests that this strategy of fighting every single case vigorously is not necessarily the best strategy to employ.

 

 

 

 

 

 

 

 

 

 

Wrongfully Dismissed Employees May Be Required to Return to Work if “Recalled”

Can an employer “recall” an employee back to work as a way of avoiding a wrongful dismissal lawsuit?  Even if the employee was wrongfully dismissed?  Since the Supreme Court of Canada’s decision in  Evans v. Teamsters Local Union No. 31 (Joblaw blog: Evans), this has become a serious strategy for some employers, especially if the offer is seen as one that was made in good faith.

In a recent case of the Ontario Superior Court, Chevalier v. Active Tire & Auto Centre, a wrongful dismissal case brought by a 33 year employee was dismissed for failure to return to work.

The plaintiff, Earl Chevalier, a service centre manager with Active Tire, was placed on a lay-off with minimal notice and no compensation.  Mr. Chevalier wasted no time in suing Active Tire for wrongful dismissal two weeks after being dismissed.  He claimed that he could not be “laid-off” with no pay  and that this was a constructive dismissal.  In response to the lawsuit, Active Tire wrote to Mr. Chevalier, apologized and asked him to come back to work.  Mr. Chevalier elected not to return to work and instead proceeded with his law suit.

At trial, the Court agreed that Mr. Chevalier had been constructively dismissed.  Active Tire could not just lay him off with no notice after 33 years.  However, the main issue was whether Mr. Chevalier should have been required to return to work in these circumstances.  He argued that Active Tire had tried to “make his life miserable” in the period leading up to his dismissal and he therefore would have had to return to work in an atmosphere of “hostility, embarrassment or humiliation.”

After reviewing the evidence, the Court rejected Mr. Chevalier’s claims.  It held that a “reasonable person” would have returned to work in all of the circumstances.  Mr. Chevalier was not able to demonstrate to the Court that his workplace had become intolerable and he was therefore required to return.

If Active Tire had not called Mr. Chevalier back to work, the Court ruled that he would have been entitled to 16 months’ compensation – the time period it took Mr. Chevalier to find new employment.  However, the result in this case was that he was not entitled to anything and was required to pay legal fees to Active Tire, as well as his own.

This case is an example of the risky nature of wrongful dismissal litigation.  It illustrates the importance of obtaining proper legal advice and following it.  Under current Canadian case law, employees who are dismissed or laid off off must seriously consider an employer’s offer to return to work, if it is an offer made in good faith.  Important points to consider may be:

  • Is the offer to return an offer for the same position that the employee held?
  • Will the pay and working condition remain the same?
  • Is there significant evidence of conduct that is embarrassing or humiliating?
  • Does the employee have other employment possibilities?

Dismissed employees should carefully review all of these issues, as well as other related matters, with competent employment law counsel.  Making the wrong decision can be costly and harsh.

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