Farwell v. Citair, Inc.: Constructive Dismissal by Demotion

Image One of the realities of running a business is that sometimes an employee’s role has to change in order to ensure the efficient operation and, in some cases, the survival of that business. Unfortunately, despite an employer’s well-meaning intentions, this kind of business decision can result in liability for constructive dismissal.

This was the situation before the Ontario Court of Appeal in Farwell v. Citair, Inc. (General Coach Canada), 2014 ONCA 177 where a 58 year old VP of Operations with 38 years of service was returned back to his former position as a Purchasing Manager by the employer.

Constructive Dismissal

Unlike a wrongful dismissal, a constructively dismissed employee has not actually been dismissed.  Instead, the employer has made fundamental changes to the employee’s job without the employee’s input or agreement.  In effect, the changes made by the employer are so drastic that the job the employee accepted at the start of the employment relationship no longer exists.  Hence, the term “constructive dismissal”, a dismissal implied by operation of law.

At trial, the court held that Mr. Farwell was constructively dismissed and awarded him damages equal to 24 months of pay in lieu of notice.  The employer appealed on three grounds:

  1. The trial judge misapplied the principles of the law of constructive dismissal;
  2. The trial judge erred in her assessment of damages; and
  3. The trial judge erred in failing to find that Mr. Farwell did not mitigate his damages by working for the employer as a Purchasing Manager during the notice period.

On the first ground of appeal, the Ontario Court of Appeal accepted the trial judge’s conclusion that the demotion back to Purchasing Manager from VP of Operations was a significant loss of status and prestige that constituted a fundamental change to the employment agreement and a constructive dismissal.  With regard to the second ground of appeal, the court deferred to the trial judge’s assessment of damages and concluded that 24 months of pay in lieu of notice was reasonable for a 58 year old high-level manager who spent two-thirds of his life with the employer.

As for the third ground of appeal, the court acknowledged that the trial judge may have incorrectly taken a subjective approach in assessing that the stigma and loss of dignity was too great to mitigate by returning to work for the employer.  In other words, rather than objectively considering if a reasonable person would return to work under the same circumstances, the trial judge may have focussed her assessment on what Mr. Farwell thought about returning to work for the employer.  The court also acknowledged that, in light of the absence of any animosity between the parties, Mr. Farwell may well have been obligated to mitigate by working for the employer as a Purchasing Manager.

However, Mr. Justice Lauwers, writing for the court, pointed out, “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 constructive and wrongful dismissal.”  Herein was the fatal flaw in the employer’s case.  In order to successfully argue that Mr. Farwell failed to mitigate his damages by working as a Purchasing Manager during the reasonable notice period, the employer first had to offer the position after Mr. Farwell refused to accept the imposed changes.

Practical Considerations

The take-away for employers in this case is that it is not safe to assume that the employee is always free to accept the position unilaterally imposed on him in order to mitigate his damages.  Once the employee has rejected the change, the employment agreement is at an end. In order to bolster the mitigation argument, the employer must then make it clear to the employee that the very same position that led the employee to assert constructive dismissal is still available to mitigate damages.

For the employee, the take-away is that it is important to assess the workplace atmosphere before claiming constructive dismissal.  Depending on the circumstances, the employee may be obligated to return to work for the employer in order mitigate his damages, despite whatever hard feelings he may bear towards the employer.

As I stated in a previous blog post, employment law, and constructive dismissal in particular, can be a lot like a chess match.  It is often beneficial to have competent employment counsel advising you on how to best respond to the moves that the other side makes.

This article is intended only to provide general information and does not constitute legal advice.  Should you require advice specific to your situation, please feel free to contact me to discuss the matter further.