Avoiding constructive dismissal claims

Originally appeared in the Lang Michener LLP InBrief Summer 2009.
Author: Lai-King Hum

As many employers will attest, there is nothing constructive about facing a constructive dismissal claim. And when it comes to re-assignments, employers seem particularly vulnerable.

Employers have some freedom in re-assigning employees and, in times of economic turbulence, such re-assignments to other positions may be one way of keeping valued employees when their jobs are otherwise eliminated. But re-assignments are also a way for employers to move employees performing poorly in one area to another area more in line with their skill set. And so, re-assignments of this kind must be carefully handled.

A unilateral re-assignment, without employee consent, particularly where the reassignment is to a lesser position and could otherwise be viewed as a demotion, can give rise to a claim for constructive dismissal. This, in turn, could lead to an award of damages or compensation in lieu of reasonable notice.

However, since a two-step process is involved in the analysis of constructive dismissal claims, even where constructive dismissal is clearly established, employers may be able to rely on the employee’s obligation to mitigate to minimize exposure to damages.

A recent decision of the Ontario Superior Court of Justice in Loehle v. Purolator Courier Ltd. provides an illustrative example.

Rick Loehle had commenced his employment with Purolator in February 2001. Within a year, he became a unit manager at one of Purolator’s warehouse facilities. Loehle then applied for a more senior manager position in the newly created internal audit department at corporate headquarters. The position was advertised as a two- to three-year term position, at the end of which the incumbent would move to another position “potentially in a management role.”

Loehle’s reputation as a “high achiever” continued over the course of the next three years. His assessments were always “highly favourable” and he was obviously a “valued employee.” But when his assignment came to an end in December of 2005, Purolator provided him with temporary audit assignments and asked him to look for another position within the company. His compensation levels did not change, but his job search was unsuccessful.

By September of 2006, Loehle was advised by human resources to return to his former position as a unit manager with a corresponding reduction in salary, if he could not find a job. Loehle refused.

Three months later, the company presented Loehle with a formal offer of employment as a unit manager. Importantly, this offer continued his new salary and bonus payment, without reduction.

But this last offer came with a warning. Purolator would consider Loehle had resigned if he did not show up for work as the unit manager. Loehle refused to accept the offer and, instead, sued for constructive dismissal.

The trial judge had little difficulty finding that Loehle had been constructively dismissed. Justice Donald Gordon saw moving Loehle back to his former unit manager position as a demotion involving “dramatic changes in responsibility, status and working conditions” from the position he held in internal audit.

Although the internal audit assignment had been temporary, Loehle’s contract of employment was open-ended; that is, the employment contract did not contemplate that Loehle could be required to accept a demotion. Hence, by unilaterally requiring Loehle’s return to his former position, Purolator committed a fundamental breach that went to the root of the contract and Loehle was seen as constructively dismissed.

Fortunately for Purolator, a finding of constructive dismissal is only the first step of the inquiry. The next step was for the judge to address what compensation was owed to Loehle in light of any failure to mitigate.

An employee is required to mitigate the damages arising from the loss of his or her employment. Where the dismissing employer offers an alternative position, the employee is required to mitigate by accepting the offer, if it is objectively reasonable to do so. The key question is whether a reasonable person would have accepted the employer’s alternative offer in mitigation of damages.

Loehle testified that returning to his former position would have been embarrassing to him and that he felt his credibility with his co-workers would have been lost. Justice Gordon accepted Loehle’s feeling of humiliation as genuine, but Loehle’s subjective feelings did not suffice. The test is an objective one and Loehle had no objective evidence to back up his feelings. His decision not to report to work could not be legitimately sustained. On the contrary, the evidence demonstrated that he remained a valued employee, that his relationship with Purolator was not “acrimonious,” and the work was not “demeaning.” Consequently, Loehle failed in his duty to mitigate and was not entitled to any compensation.

In summary, when re-assigning employees to different positions or placing them on temporary assignments, employers must be mindful of the potential for a constructive dismissal claim, and that they can turn an employee’s obligation to mitigate to their own advantage.

The following points are practical summaries of the law in this area:

If placing an employee into a temporary position, the job offer should specify that the position is for a fixed term. Including a clause explaining what will happen at the end of the assignment and that the employee could be required to return to his former position could prevent constructive dismissal claims.

If an employee’s job is eliminated, finding the employee a comparable position is one way for an employer to avoid liability. If such a position is not available, an employer could offer a different position on a temporary basis until a comparable one is found. Bear in mind that Purolator offered Loehle his former position without reduction in compensation. If there is a significant reduction in compensation, Loehle would have been justified in his refusal to return to work.

Positive announcements about the re-assignment, and offers of support regarding the re-assignment, decrease the likelihood of successful constructive dismissal claims. Loehle’s subjective feelings did not rise to the requisite objective level partly because no other employee testified as to how he or she would have felt about Loehle’s return to his former position. A positive perception in the workplace will provide objective counter evidence to subjective feelings of humiliation and embarrassment.