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Summaries Sunday: OnPoint Legal Research

One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.

ALLEN v. AINSWORTH LUMBER CO. LTD., 2013 BCCA 271

1. CASE SUMMARY

Areas of Law: Employment; Wrongful Dismissal; Constructive Dismissal

~Employers as well as employees could take the benefit of the doctrine of constructive dismissal. Whether the departure of an employee was properly a termination or a repudiation of employment was a finding of fact for the trial judge~

Discussion: This wrongful dismissal case was unusual in that the employer, rather than the employee, attempted to benefit by establishing that a constructive dismissal had taken place. The plaintiff employee, Allen, had a contract which provided for “15 months notice or pay in lieu” on termination. Ainsworth, the employer, terminated Allen by letter which stated: “you are entitled to 15 months notice of the termination of your employment and therefore, your last day with Ainsworth will be January 13, 2011. There will, however, be no need for you to come to work beyond today.” Allen found new employment eight months later. Ainsworth stopped its payments at that time, on the basis that the letter had not terminated Allen’s employment, but rather had created a change in working conditions which constituted repudiation of the employment or constructive dismissal, and Allen had a duty to mitigate his damages. In setting out how the letter should be treated, Ainsworth relied on the decision of the Ontario Court of Appeal in Wronko v. Western Inventory Service Ltd., 2008 ONCA 327, at paragraphs 34-36:

First, the employee may accept the change in the terms of employment, either expressly or implicitly through apparent acquiescence, in which case the employment will continue under the altered terms.

Second, the employee may reject the change and sue for damages if the employer persists in treating the relationship as subject to the varied term. This course of action would now be termed a “constructive dismissal”, as discussed in Farber, although this term was not in use when Hill was decided.

Third, the employee may make it clear to the employer that he or she is rejecting the new term. 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.

Ainsworth argued that it was permitted to structure Allen’s employment as best served its purposes, and that it could decide to do so as a constructive dismissal: Park v. Parsons Brown & Co. (1989), 39 B.C.L.R. (2d) 107 (C.A.).

The Court of Appeal found that Ainsworth’s position accurately characterised the law, but that the trial judge’s decision that Ainsworth’s conduct constituted termination was a finding of fact:

Ainsworth seeks to cast this finding as an error in law, but a finding of dismissal is a finding of fact. The test is objective: was notice of termination specifically and unequivocally communicated to the employee in such a manner that a reasonable person would clearly understand the employment contract was at an end? Dismissal is a matter of substance over form. Termination of employment may arise from express notice, or be implied from conduct of the employer that amounts to repudiation of its essential obligations in the employment relationship.
(At paragraph 27.)

The Court of Appeal also commented on the trial judge’s statement that the purpose of the doctrine of constructive dismissal was to protect employees, and that an employer could not properly take advantage of it. While constructive dismissal normally appeared as a remedy for employees, that was not to suggest that employers could not also take advantage of it when it favoured them. In these circumstances, the trial judge had a basis to find Ainsworth’s actions in publicly identifying Allen as an ex-employee amounted unmistakably to immediate termination.

2 (a). COMMENT BY COUNSEL FOR THE APPELLANT, AINSWORTH LUMBER CO. LTD., Richard Press

The Court of Appeal’s recent decision in Allen v. Ainsworth Lumber Co. Ltd. 2013 BCCA 271 is instructive for counsel advising clients on structuring terminations, and in particular on how far an employer can go in unilaterally changing terms and conditions of employment during a working notice period. The decision is important to those employers who provide working notice of termination without requiring the employee to attend at work.

In Allen v. Ainsworth the pertinent facts were that Ainsworth had an employment agreement with Mr. Allen that allowed for termination on 15 months’ notice or pay in lieu. There was no dispute that if Ainsworth elected to terminate, it would be held to the “pay in lieu” requirement and would have to pay a lump sum equal to 15 months compensation, without consideration of mitigation.

Ainsworth’s argument was that it did not terminate the employment relationship, but rather gave working notice as it was entitled to under the employment agreement. Ainsworth said as it had provided notice, the duty to mitigate was preserved and income received by Mr. Allen during the notice period mitigated his loss.

On the facts, Ainsworth had provided a letter expressly stating it was giving 15 months’ notice. However, the court found that Ainsworth’s subsequent conduct of taking away Mr. Allen’s duties and publicly announcing it had terminated him and was replacing him effective immediately amounted to a termination.

Ainsworth acknowledged its conduct amounted to a repudiation of the employment agreement. But Ainsworth denied that repudiation and termination were synonymous.

Ainsworth reasoned that taking away all an employee’s duties may be a constructive dismissal, but only if the employee refuses to accept that unilateral change. Ainsworth suggested that in Canada there are many employees who would jump at the opportunity to accept employment terms that allowed them to receive their regular compensation while not having to perform their duties. In other words, Ainsworth said it should be allowed to provide working notice without requiring Mr. Allen to actually work. As long as Mr. Allen accepted that state of affairs, there was no breach of the employment relationship.

Ainsworth suggested in argument that the difference between a repudiation which is open for acceptance and a termination is that the former occurs when the employer unilaterally alters a fundamental term or terms of the employment relationship, but in the context the employment relationship could continue if the employee so chose. The latter occurs when the employer through clear and unequivocal notice brings the entire agreement to an end and there is no option for the employee to continue in the employment relationship in any capacity.

The Court of Appeal did not accept Ainsworth’s argument on that issue. Further, while the Court of Appeal agreed with Ainsworth’s overall analysis on repudiation, it held that it was not germane as Ainsworth did not just repudiate the employment agreement, it terminated it.

The pith of the Court’s analysis is that termination is a question of fact and the test, objective. The Court clarified that “a repudiation of [an employer’s] essential obligations in the employment relationship” will result in an actual termination, and need not be accepted by the employee as a pre-requisite to ending the employment relationship.

The Court’s decision does not establish a bright line between repudiation and termination. For example, if Ainsworth had taken away all Mr. Allen’s duties, but not announced to the world it had terminated him, would that still have been a termination? Or would it only have been a repudiation that Mr. Allen would have had to accept to end the employment relationship? What if Ainsworth had required Mr. Allen to continue to attend at work once per month?

In the author’s view, the Court’s decision does clarify that if it looks like a duck, walks like duck and sounds like a duck, the courts will find it is a duck, and so too with termination. An employer who on paper provides working notice, but in fact creates an objective impression of termination, will have been found to have terminated.

Overall, an employer who wishes to rely on working notice, but who also wishes to not have the employee attend at work during that working notice period, will be well-served by either obtaining the employee’s express agreement to the change, or maintaining some continuing objectively factual link to the employment relationship.

2 (b). COMMENT BY COUNSEL FOR THE RESPONDENT, ROBERT ALLEN, Katherine Wellburn

This appeal was a victory for an employee whose employer had tried to avoid its obligation pursuant to a negotiated employment agreement to give the employee fifteen months’ notice or pay in lieu of notice, if the employer severed the employment relationship. The employer took away all of the employee’s duties and responsibilities, denied him access to its corporate premises, email and voicemail and hired a replacement, but wrote him a letter purporting to put him on working notice.

The Court of Appeal upheld the summary trial judge’s finding that the employer’s attempt to characterize the situation as working notice was a “masquerade” and that the circumstances “amounted unmistakably to immediate termination.”

The employer was required to pay the 15 months’ salary and benefits owing pursuant to the employment contract with no deduction for the remuneration the employee received from a new job, because his employment contract did not impose a duty to mitigate. On this issue, the Court of Appeal relied on the B.C. case, Philp v. Expo 86 Corp. (1987), 45 D.L.R. (4th) 449 (B.C.C.A.), 1987 CanLII 2476 and the recent case from the Ontario Court of Appeal, Bowes v. Goss Power Products Ltd., 2012 ONCA 425, 351 D.L.R. (4th) 219.

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