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Employer Fails to Trigger Employee’s Duty to Mitigate

In Farwell v Citair Inc. (General Coach Canada) 2014 ONCA 177 the appellant, Citair Inc., argued that the trial judge made an error of mixed fact and law, and misapplied the principles of the law of constructive dismissal.

Constructive Dismissal

The trial judge held that Citair Inc. had wrongfully dismissed the respondent, Kenneth Farwell. She found that moving Mr. Farwell from Operations Manager/ Vice President Operations to the position of Purchasing Manager was a fundamental change to the employment contract. The argument that Mr. Farwell had not mitigated his damages because he did not stay in the position offered to him of Purchasing Manager for the notice period, was dismissed. The trial judge fixed the damages in lieu of notice at 24 months.

The trial judge applied the principles from Farber v Royal Trust Co. [1997] 1 SCR 846 which stated at para 34 that:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer’s part to provide damages in lieu of reasonable notice.

The trial judge found that reorganizing Mr. Farwell’s role from VP Operations to Purchasing Manager involved a significant change in responsibilities and duties. This involved a change in title which reflected his diminished role in the company, which resulted in significant loss of status and prestige. Based on all of the evidence gathered, the trial judge concluded that from an objective point of view the positions did not have the same status or prestige.

The Court of Appeal agreed with the trial judge that Mr. Farwell was constructively dismissed, and that the decision fits in with the law as stated in Farber.

Notice Period

The notice period was set to 24 months by the trial judge, and the Court of Appeal agreed with this finding.

Mitigation

To fulfill his mitigation obligation, Mr. Farwell made efforts to find other employment but was not successful for many months, due to a poor economy.

The employer argued that Mr. Farwell had a duty to mitigate damages, and that he was obligated to accept the job of Purchasing Manager during the period of working notice; the salary and working conditions would have remained unchanged, although there would likely be a reduction in bonus. The employer also argued that Mr. Farwell was very well liked and that there would be no humiliation when the change occurred.

Leaving aside the issue of humiliation and whether there was stigma or loss of dignity, the Court of Appeal stated that, “[the employer’s] mitigation argument presupposes that the employer has offered the employee a chance to mitigate damages by returning to work. To trigger this form of mitigation duty, the appellant was therefore obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he refused to accept the position of Purchasing Manager and told the appellant that he was treating the reorganization as a constructive dismissal.” [Para 20]

The Court of Appeal stated that, “There is no evidence that the appellant extended such an offer to Mr. Farwell. Accordingly, Mr. Farwell did not breach his mitigation obligation by not returning to work.” [Para 21]

In other words since the job was not re-offered to the employee after he refused to accept the initial change, the duty to mitigate was not triggered. The employer is required to formally offer the employee the opportunity to work out the notice period in the new position, specifically in circumstances where the employee refuses to initially accept the alternate position.

The appeal was dismissed with costs.

What does this mean for employers?

This decision seems to create a technical requirement for employers, in that employers must formally offer continued employment, to trigger the duty to mitigate on an employee. In this case, the duty to mitigate was never actually triggered because the job had not been re-offered to the employee after the employee refused to accept the initial change.

To avoid constructive dismissal claims, employers should make an offer in writing to the employee and indicate what changes will be made to their position. This should include the employee’s responsibilities, reporting obligations, and remuneration. The employee should also be given a reasonable amount of time to consider the offer.

The lawyers at CCPartners can advise employers to reduce the risk of liability, when faced with a constructive dismissal claim.  We can assist in the drafting of notices and ensuring that employees are communicated to in a clear manner.