Depressed Industry Boosts Notice Period

Daniel Standing LL.B., Editor, First Reference Inc.

If you lost your job today, how are your chances for employment elsewhere? Depending on your industry, the answer could range from promising to dismal. In April 2020, when the pandemic was a new reality, the answer could have been different still. At that time, in the automotive industry, people were driving less. New cars gathered dust in dealers’ parking lots. Many thousands of jobs were affected, and sometimes courts were called upon to sort out the aftermath. In Hogan v 1187938 B.C. Ltd., 2021 BCSC 1021 (CanLII), Justice Gerow’s focus on the state of the industry in setting a generous notice period will be of interest to employers. We also see the court agree with the plaintiff on mitigation, providing employers food for thought when offering a dismissed employee alternate employment.

Key facts

Terry Hogan worked his way up the ranks at Mercedes-Benz Vancouver, starting as a mechanic in 1998 and becoming assistant service manager in 2013. The pandemic caused a sharp decline in service appointments, with customers generally only scheduling required maintenance. As a result, in March 2020, the dealership issued layoff notices to a number of its employees, including Hogan. At the time, it said it would be a temporary layoff.

Business continued to decline. The dealership gave Hogan a $500 “earnings subsidy.” In August, it gave Hogan notice that his employment was permanently and immediately terminated and handed him a cheque for $13,255 in termination pay. Besides the almost $20,000 Hogan received in federal benefits, he earned about $4,000 with Elections Canada.

In the course of the litigation, the employer offered Hogan a service advisor position at Don Docksteader Motors Ltd., a Vancouver dealership owned by the same parent company but under separate management from the employer. Hogan turned it down because he saw it as a demotion that would have required him to work significant overtime, something he couldn’t do because of his childcare obligations. Furthermore, he would have had to sign a release, so accepting the job would have meant dropping his lawsuit against his former employer.

What the court decided

First, the court considered when Hogan’s employment ended: was he constructively dismissed in March 2020, or was he terminated in August? Applying the Supreme Court’s 2015 Potter decision, Justice Gerow noted that this was a unilateral layoff that, despite an initial assurance that it would be temporary, was not. There was no evidence that the employment contract allowed the layoff, which had a significant impact on Hogan. The court found that when the employer laid off Hogan, it clearly showed that it no longer intended to be bound by the employment contract. Therefore, it was a constructive dismissal despite the company’s legitimate business interest in acting as it had.

The parties disputed the appropriate notice period. Hogan argued for 21 or 22 months, whereas the employer said 15 to 17 months was the suitable range. As this issue is always resolved according to the Bardal framework, the court considered Hogan’s age (55), the nature of his employment, the length of his service, his training, skills and qualifications and the availability of similar employment elsewhere. The court reviewed each side’s package of authorities and concluded that 22 months was the appropriate notice period. The court relied on the state of the industry and the plaintiff’s inability to find similar work as factors that led to the generous notice period.

The employer tried another argument, saying that Hogan failed to reasonably mitigate his loss. The employer said Hogan should have accepted the position at Don Docksteader Motors because it was the reasonable alternative in exchange for dismissing his action, for the following reasons:

• it would have allowed for a comparable salary through working overtime;
• had the same benefits;
• provided 20 vacation days;
• was in Vancouver;
• paid an additional $79,000 for wages lost during the time of unemployment.

Hogan disputed the reasonableness of the offer. Accepting a job with a different dealership owned by the same corporation that owned his former employer was unpalatable, given the ongoing lawsuit. He viewed it as a demotion only offered after he sued the employer. His skepticism over the employer’s good faith increased when the parent company posted a Mercedes-Benz service advisor job in January 2021 and wasn’t notified.

The court agreed with Hogan. All of the facts had to be considered, and certain intangible aspects of the matter were compelling. Mainly so was a ruling of the Ontario Court of Appeal that an employee in Hogan’s situation has no obligation to “effectively risk handing the defendant a Full and Final Release through the back door and under the guise of mitigation efforts.”

Working from the 22-month figure, the court held that Hogan was owed compensation based on his base salary, normal bonuses, insurance coverage and paid vacation of 22 days per year. Following the principle that damages for wrongful dismissal are intended to put the employee in the economic position they would have been in had reasonable notice been given, the court eliminated any possible windfall or “compensating advantage” by deducting $14,000, the amount of the Canada Emergency Response Benefit payment Hogan received from the government in compensation for his job loss.

Key takeaways

There are three main takeaways. First, employers can try to negotiate a term of the employment contract allowing for a unilateral layoff. Since this lawsuit came about because of the initial layoff, if the contract had authorized that step, the employer would have likely been on the hook for less money.

Second, an employer bears a greater financial risk when it terminates employment during a job market depression. Where all of the other Bardal factors align with past cases to indicate a certain notice period, poor job market conditions can serve to inflate it accordingly.

Third, an employer needs to be careful about how it presents an offer of alternate employment to a dismissed employee. As the employer bears the burden of proving its allegation that the employee failed to mitigate their loss, any such offer must be reasonable. That will include not only obvious factors like the job’s location and pay, but it should not force an employee to make a significant concession like giving up an ongoing lawsuit. Courts do not reward employers for getting what they want through the back door.