1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

Internal Reorganizations and Constructive Dismissal: Minimizing Risk

While not making new law, the recent Divisional Court decision in Ghanny v. 498326 Ontario Limited 2013 ONSC 4057 provides a useful reminder of the steps an employer should take to minimize the risk of constructive dismissal when engaging in a good faith reorganization that impacts on the terms and conditions of its employees’ employment.

The facts of the case are quite simple. The employee, Mr. Ghanny, had been employed with Downtown Toyota for 18 years as Service Manager, earning $80,000 per year. The owner of Downtown Toyota also owned Downtown Suzuki. The owner advised Mr. Ghanny in June 2008 that his position was being eliminated at the end of the month, but that Mr. Ghanny would be relocated to Downtown Suzuki, which was just a few blocks away. Mr. Ghanny was advised that he would continue as Parts and Service Manager at Downtown Suzuki, and would earn the same $80,000 compensation package.

Mr. Ghanny refused the position at Downtown Suzuki for two reasons. First, he believed that his 18 years of service would not be recognized at the new location, and second, he was concerned that the position at Downtown Suzuki was uncertain, because the owner had also told him that in the near future it was likely that the Suzuki location would either be converted into a Lexus dealership, relocated, sold or possibly closed. As such, Mr. Ghanny felt that the position at Downtown Suzuki would only be temporary.

There was a conflict in the evidence as to whether Mr. Ghanny was told that he would lose his seniority. The employer gave evidence that it highly valued Mr. Ghanny, and legitimately wanted him to accept the position at Downtown Suzuki. To that end, the employer’s evidence was that it told Mr. Ghanny that his years of service would be transferred to Downtown Suzuki, and further that Mr. Ghanny was told that whatever the future of Downtown Suzuki, his job was not at risk.

On the issue of recognition of service, the trial judge preferred the evidence of the employer over the evidence of the employee. The Court held that it was unlikely that the employer, who was attempting to convince a valued employee to accept a new role, would have told him that his service was being eliminated. It found that it was more likely that the employer told him that although his service at Downtown Toyota was being eliminated, his service would be transferred to Downtown Suzuki.

The Court found that one month’s notice of the change was insufficient, and that if Mr. Ghanny’s action had been successful, 14 months would have been reasonable notice. That said, relying heavily on the Supreme Court of Canada decision in Evans v. Teamsters Local 31, [2008] 1 S.C.R. 661, the trial judge dismissed the action, finding that it was unreasonable of Mr. Ghanny to refuse to accept the position at Downtown Suzuki. The Court stressed a number of factors in coming to this conclusion:

  1. Although not an identical job, the position at Downtown Suzuki was the same type of job, and as such the new position would not have been demeaning or insulting.
  2. The employer legitimately wanted to retain the employee, and as such this was not a veiled attempt to get rid of him.
  3. The employee was given assurances that his overall compensation would remain the same.
  4. The employee was told that although there was a risk that the dealership might close, the employer would find a place for him within its organization.

Key to the Court’s conclusion was the fact that with the exception of the issue of service recognition, the terms of the new position were clearly outlined by the employer. As such, there was no ambiguity as to the nature of the position or the compensation the employee would receive. Given that the new position was comparable to the previous position, Mr. Ghanny failed to mitigate his damages by refusing to accept the new role, and was not entitled to pay in lieu of notice. On appeal, in a brief endorsement, the Divisional Court determined that the trial judge had correctly applied the law, and upheld the decision.

For employers, this case reinforces that legitimate organizational changes can be implemented without triggering constructive dismissal where the new position and compensation are comparable to the previous role. When proceeding with organizational change that impacts terms and conditions of employment, this case highlights the importance of the following:

  1. Give as much notice of the change as possible.
  2. Be clear with the employee as to: (i) the nature of the new position; (ii) any revised compensation; and (iii) how the employee’s service will be recognized. In Ghanny, it appears that one of the reasons the employee rejected the change was a misunderstanding as to whether his service at the new location would be recognized. Had the employer been clear in its offer (for example, by sending an e-mail or other written communication confirming the terms of its offer), a significant issue at trial could have been avoided.
  3. Where appropriate, make it very clear to the employee that this is an organizational change, and that he/she is a valued employee whom the employer wishes to retain.
  4. If the employee rejects the change, make efforts to find out why, and if possible address the concerns, or at a minimum explain why the employer needs to implement the aspect of the change that the employee finds objectionable. The employee should then, if possible, be given the opportunity to reconsider accepting the role.

Proceeding with these considerations in mind will make an employee more likely to accept a new position, and if the matter proceeds to litigation, reduce the risk (and liability) of constructive dismissal.

To view the Trial Decision click here:

To view Divisional Court Decision client here:

,

Internal Reorganizations and Constructive Dismissal: Minimizing Risk

HR Professionals: The Key to Smooth Corporate Acquisitions

Although human resources professionals are not always recognized for their efforts during a corporate acquisition, the work which they do behind the scenes can often make the difference between an acquisition succeeding or failing.  The following is a brief summary of key issues for HR professionals to stay on top of, long before an acquisition is ever contemplated, during the due diligence phase and right through to closing.

There are two types of transactions which can result in the purchase and sale of a business – a share purchase and an asset purchase.  In a share purchase, the corporate identity of the target company does not change and as a result, the employees remain employed by the same purchaser after closing.  Unless new employment agreements are negotiated with the purchaser, the employment terms and conditions of those employees will not change on closing.  In an asset purchase however, only certain assets of the target company are purchased and the employees are therefore generally terminated by the target company unless they agree to accept new employment with the purchaser.

Keeping Your House in Order:

All too often, proposed acquisitions fall through after the purchaser becomes aware of potential employee liabilities which it will have to assume in the event of an acquisition.  As an HR professional, you can assist with minimizing those liabilities long before an acquisition is being contemplated, by ensuring that: (i) well-drafted employment agreements are properly entered into; (ii) the company is protected with any necessary confidentiality, intellectual property and restrictive covenant agreements; (iii) there are no significant wages, vacation pay and overtime pay accruals; (iv) employee claims and complaints are kept to a minimum; and (v) mandatory statutory obligations are complied with (eg. WSIB registration; compliance with the Occupational Health and Safety Act; compliance with the Pay Equity Act).  When potential employment liabilities are kept to a minimum, it greatly reduces the risk of a purchaser walking away from a deal due to the added costs of correcting the liabilities.

Due Diligence:

HR professionals should be aware of the fact that even in an asset purchase, the Employment Standards Act, 2000 contains successor employer provisions.  In particular, section 9 of the ESA states that if a purchaser hires an employee of a vendor within 13 weeks of closing, the purchaser will be deemed to have taken on the employee with all of his or her prior years of service with the vendor.  Therefore, although the inclination may be to think that the purchaser in an asset deal can “fix” employment problems hand-in-hand with the hiring of employees on closing, sometimes employees will balk at going to a new employer if they are not being hired on similar or better terms to those which governed their employment with the vendor.  In this regard, it is often helpful for the vendor to work with the purchaser during the due diligence phase in order to determine who will be provided with offers of new employment and what the new and continuing terms of employment should be.

HR professionals in Ontario should also be aware of the fact that the Personal Information Protection and Electronic Documents Act (PIPEDA) does not yet have a business transaction exemption.  Although employee personal information is not generally caught under PIPEDA, it can be subject to PIPEDA when employee personal information is being collected, used or disclosed for commercial purposes such as an acquisition.  In order to ensure that there are no personal information breaches in connection with the acquisition of a company, if you work for the vendor it is wise to get the employees to sign a consent to the disclosure of their personal information at the time that they are first hired, as to do so in the midst of a transaction can tip employees off before the transaction becomes publicly known.  Whether or not the employees have signed consents at the time of hire, it is also wise for the vendor and the purchaser to enter into confidentiality agreements with respect to employee personal information which may be disclosed in relation to the transaction.

Closing:

As the closing of the transaction approaches, it is particularly important for HR professionals for both the vendor and the purchaser to try to work together to determine such issues as who will take responsibility for accrued vacation, whether releases will be sought from employees who are part of an asset purchase, whether and what type of new employment agreements will be offered to those employees who are remaining on, and ensuring that employees who are not remaining on are properly terminated at or prior to closing.  As well, there is often a need for certain key employees to remain on for a limited period to assist with transition work, and thought often needs to be given to whether those employees should be provided with a special retention bonus agreement or whether the expectation is that they will simply work out their notice of termination period doing transition work.

As always, it is important for HR professionals to obtain legal advice from an employment law specialist in conjunction with the above steps.  Together, they can make the difference between a difficult acquisition and a successful one.

,

HR Professionals: The Key to Smooth Corporate Acquisitions

Ontario Jury Awards Ex-Employee $1.4 Million for Mistreatment by Former Manager

In a cautionary tale for employers, a jury in Windsor, Ontario awarded $1.4 million in damages to a former Wal-Mart employee who alleged that she had been constructively dismissed after being subjected to intentional infliction of mental suffering by her former manager.

The jury award included $1.2 million in punitive damages and damages for mental distress against the employer, and an additional $250,000.00 in punitive damages and damages for mental distress against the manager. The former employee established that the manager had punched her on the arm on two occasions, and had subjected her to profane and insulting mental abuse. Those allegations were that the manager had called the employee “a [expletive] idiot” in front of her co-workers, and that the manager had made the former employee count skids in front of co-workers in order to prove to him that she could accurately count.

A link to the Windsor Star article on the court decision is attached: http://blogs.windsorstar.com/2012/10/10/walmart-must-pay-1-4-million-for-mistreating-employee/

The employer has already appealed the jury’s verdict to the Ontario Court of Appeal, calling the award “…wholly disproportionate and/or shockingly unreasonable.” This is not surprising, given that this award would set a new high-water mark for punitive damages in a wrongful dismissal case. (It appears that the jury may have based its award roughly on the amount that the former employee, who is currently 42 years of age, would have earned had she remained employed in her position until age 65. This figure had been raised by the former employee’s counsel in his closing submissions, although the trial judge had specifically instructed the jury not to consider that figure.)

Although, in our view, it is likely that the jury award will be set aside or reduced on appeal, this decision does underscore how important it is for employers to have a clear policy against incidents of workplace violence and harassment and to take prompt action to address such incidents when potential allegations of this nature come to light.

,

Ontario Jury Awards Ex-Employee $1.4 Million for Mistreatment by Former Manager

You Quit: Employee’s Claim of Constructive Dismissal Fails

On August 2, 2012, the British Columbia Supreme Court issued its judgment in the case of Danielisz v. Hercules Forwarding Inc. (2012 BCSC 1155). In Danielisz, the plaintiff was a customs broker with the defendant employer. At the time of her alleged constructive dismissal, the plaintiff was a Director of the employer (as the employer apparently required a licensed customs broker on its Board of Directors) and was manager of the customs department.

The employer’s office staff had a history of dissension and interpersonal difficulties. The Plaintiff claimed that she tried to overcome these difficulties, but that the other staff, including her subordinates, had ganged-up on her. She also claimed that her employer had undermined her authority by favouring lighter discipline for a staff member than the Plaintiff had originally imposed.

After a meeting at which the employer had tried to resolve some of the conflicts in the workplace, the Plaintiff commenced a sick leave which she claimed was caused by workplace stress. The Plaintiff ultimately went on Employment Insurance sickness benefits, attempted to make a claim with respect to the workplace stress to WorkSafeBC, and filed a complaint of constructive dismissal under section 66 of the Employment Standards Act. The workers’ compensation claim was denied, and the Plaintiff withdrew her complaint under the Employment Standards Act at the mediation.

Shortly after the mediation, the Plaintiff relocated to Kelowna, British Columbia, enrolled her son in school, obtained new employment and advised a co-worker by email that she was unwilling to return to the Defendant employer. However, in her communications with the defendant employer, the Plaintiff asserted that she would be willing to return to work with the Defendant at some point after her concerns with the workplace were resolved. In response, the Defendant employer asserted that the Plaintiff, by filing her complaint under the Employment Standards Act, had repudiated her employment agreement.  The employer proceeded to replace the Plaintiff. The Plaintiff then filed her action claiming damages for constructive dismissal.

Discussing the elements of the Plaintiff’s claim, the Court noted that whether or not a constructive dismissal has occurred depends on an objective assessment of all the evidence, rather than the employee’s subjective view of events. Further, the court held that where the allegations of constructive dismissal relate to claims of undermined authority or the behaviour of co-workers, the Plaintiff must show that the conduct in the workplace was such that a reasonable person in the circumstances should not be expected to persevere in the employment. Not every criticism by an employer or dispute among co-workers will sufficiently poison the work environment such that the employment relationship is undermined.

Applying these principles to the case at bar, the Court declined to find that the Plaintiff had been constructively dismissed. The Court found that the Plaintiff had been less than forthright about her own contributions to the negative work environment (finding that the “Plaintiff was engaged in ‘poisoning the work environment’ as much as she was ‘the targeted employee’”), and further, that the employer had not undermined her authority by imposing a lesser discipline on one of her subordinates. The evidence showed that although the Plaintiff’s immediate supervisor was an ineffective manager, he still reinforced her authority after this particular event.

The bottom line, to the Court, was that despite the unpleasant atmosphere, the work was getting done, the Plaintiff was not being forced to bear more than could be reasonably expected, and the Plaintiff had done little to try and improve the situation. Dismissing the Plaintiff’s claim, the Court found that the Plaintiff’s claim to WorkSafeBC and the complaint under the Employment Standards Act, combined with her relocation and new employment and conflicts in her statements to her employer and others, suggested that she had no intention of returning to work, and had rather hoped to extract some form of compensation from her employer. All of this, the Court held, amounted to a repudiation of the terms of her employment.  Her constructive dismissal claim was dismissed.

Danielisz v. Hercules Forwarding Inc., 2012 BCSC 1155 (CanLII)

,

You Quit: Employee’s Claim of Constructive Dismissal Fails

Not Required to Mitigate With Demotion Post-Constructive Dismissal

The Ontario Court of Appeal has released its decision in Chandran v. National Bank, 2012 ONCA 205 upholding the trial decision. The trial decision is a cautionary tale for employers.

Mr. Chandran was a 18 year employee of the Bank having worked his way up from account trainee to senior manager. An informal employee satisfaction survey conducted by a HR manager revealed that Mr. Chandran engaged in bullying behaviours. Upon reviewing the results of the survey, Mr. Chandran’s boss concluded he should be removed from supervisory duties. He asked the HR Manager to identify potential openings to which Mr. Chandran could be transferred. On Mr. Chandran’s return from vacation, his boss and the HR manager told him about the general allegations, but refused to provide examples or specifics. Mr. Chandran denied the allegations. The Bank then issued a final warning letter that concluded he had engaged in disrespectful treatment of employees and colleagues contrary to its code of professional conduct and harassment and discrimination policy. The Bank relieved Mr. Chandran from his supervisory role and offered two alternate positions. Both alternate positions were relatively comparable to the senior manager role, without supervisory responsibilities.

At trial, the Bank maintained it did not have to conduct a proper investigation, and that it did not have to have cause for discipline because the two positions were comparable and did not constitute a demotion and constructive dismissal. Mr. Chandran argued both jobs were at a lower grade level resulting in lower compensation and lower prestige and that his trust in the Bank had been destroyed having not been given a chance to defend himself. His career path to future promotions had been jeopardized.

The trial judge found in Mr. Chandran’s favour. The court was critical about the lack of proper investigation conducted to support such serious discipline and harm to a long-term employee’s career. According to the court, a reasonable person in Mr. Chandran’s position would believe his employment future would be significantly limited and terms and conditions of employment substantially changed. This constituted a constructive dismissal. The court further held that, “having been issued the serious discipline … and forced to accept either of the positions which were not equal in terms to the one he held, Mr. Chandran would have been subjected to ‘an atmosphere of embarrassment or humiliation’”.

The Bank also quibbled with Mr. Chandran’s actual mitigation efforts. Although Mr. Chandran secured another management role with another bank within 14 months, the Bank maintained that he should have applied to other lower-rated positions open within the Bank and worked harder to find such a position. The court disagreed. It found that 18 months constituted reasonable notice but reduced this to 14 months in light of when Mr. Chandran secured alternate employment.

On appeal, the Bank did not contest the finding of constructive dismissal, but challenged the trial judge’s conclusion that Mr. Chandran was not required to mitigate his damages by accepting one of the positions offered by the Bank. In a unanimous decision, the Court of Appeal found no palpable and overriding error in the trial judge’s conclusion. It similarly found no fault with the trial judge’s decision to increase Mr. Chandran’s award of costs by $20,000 because the Bank had not accepted a reasonable offer to settle.

What are the key takeaways from this decision? There are (at least) three: (1) a proper investigation with a full opportunity to respond is essential to support disciplinary action, (2) long-term employees deserve additional consideration before disciplinary decisions are made, and (3) demotions are humiliating and embarrassing even if dressed up as a transfer thus removing any obligation to mitigate by acceptance.

Chandran v. National Bank of Canada, 2012 ONCA 205 (CanLII)

,

Not Required to Mitigate With Demotion Post-Constructive Dismissal

Boss’s “Stern Talk”, “No Nonsense” Style did Not Cause Constructive Dismissal

An Ontario judge has decided that an employee who resigned due to her boss’s stern talk and businesslike management style was not constructively dismissed.  This will be a welcome decision to employers.

The employee, who worked for a travel agency, went off work on a “stress leave”.  When she returned to work, she presented the owners with 17 “expectations” that she wanted met upon her return to work.  The expectations include having a “comfortable, even temperature in the office”, “even distribution of workload”, “no more derogatory comments or putdowns about my work or my personal appearance”, and “a little more relaxed atmosphere in the office”. She also complained that company uniforms were “funereal”.

Mr. Justice James Wilcox decided that the employee had not been constructively dismissed.  While the employee had complained about being “yelled” at, the plaintiff’s in-court demonstration of her boss’s “yelling” showed that it was “not particularly loud, falling well short of a yell” and was more “tone” than volume and was “more in the nature of stern talk”.

Justice Wilcox stated,

“I accept that the defendant’s is a busy office and there are pressures of deadlines and volumes to contend with.  In addition, [the boss's] personality and management style might not be to everyone’s liking.  She had expectations of the staff and made them known.  There is definitely an edge to how she comports herself, which she would describe as ‘no nonsense’.  Clearly, it would be uncomfortable to be on the wrong side of her.  On the other hand, her testimony about purchasing clothes or personal services for the staff, for example, reveals another dimension of her, as does a comment recorded by Dr. Beck after the plaintiff had returned from stress leave as follows: ‘Her boss seems to be making some effort to try and accommodate her.’”

Finally, Justice Wilcox noted that the job was inherently stressful, and the plaintiff had other non-work related problems including financial challenges and pre-existing health conditions.  The employee’s personal conclusion that she needed to quit her job was not relevant; objectively speaking, she was not constructively dismissed.

Chartrand v. R.W. Travel Limited, 2011 ONSC 2148 (CanLII)

,

Boss’s “Stern Talk”, “No Nonsense” Style did Not Cause Constructive Dismissal