Employers in Ontario must be careful to avoid terminating employees through constructive dismissal. Constructive dismissal occurs when an employer changes a significant term of the worker’s employment without obtaining the consent of that worker. Constructive dismissal also occurs where an employer signals that it no longer wishes to uphold the terms of the employment contract. In either scenario, the worker could treat her or his employment contract as being terminated. This is what occurred in the case discussed below, where the Ontario Superior Court not only found that there was constructive dismissal but also awarded the employee over $1 million dollars in damages. Recently, the Ontario Court of Appeal upheld that decision.

Employer Changes Locks on Employee

The employee had been the owner of a funeral home family business. By 2012, the employee decided to sell the family business to the employer. At this point, the employee was in his mid-50’s and had exclusively worked for his family’s business. The parties negotiated a Transitional Consulting Services Agreement (TCSA). As part of the agreement, the employee would continue working as a general manager of the funeral home for a fixed-term of 10 years. However, the TCSA had no provision for early termination and it contained a non-competition clause that applied for 10 years following termination of the employee.

Problems soon developed between the employee and the employer. The employer required the employee to provide him with timesheets and forbade him from using the company vehicle. The employee removed some furniture that he had stored there and the employer believed that the employee had thrown away company files as a result. Consequently, the employer changed the locks to the funeral home without notice to the employee. In 2013, the employee began a two-week medical leave. The employee provided a note to the employer stating, “I wish to make clear I am on medical leave and am not stepping down from my position as general manager…” The employee was then reassessed by his doctor who provided a second note stating that he was “off work for medical reasons while work issues are resolved.”

Shortly thereafter, the employee went to the funeral of a relative at the funeral home. He discovered that his desk had been moved to the basement and that his pictures, which had hung on the wall by the front desk of the funeral home, had been removed.

The employee never returned to work. The employee brought an action against the employer in 2015.

Employer’s Conduct Amounted to Constructive Dismissal

The trial judge in the decision found that there had been a constructive dismissal. The trial judge applied the second branch of the test set out in the Supreme Court of Canada case Potter v. New Brunswick (Legal Aid Services Commission), and found that the employer:

• Failed to pay the respondent commissions to which he was entitled;
• Removed the employee’s photograph from the funeral home;
• Changed the locks to the funeral home without notice or explanation;
• Improperly terminated the employee’s use of his company vehicle; and
• Recruited a subordinate employee to track the employee’s time at work, without notifying him.

The trial judge found that the employer had been involved in a course of conduct that would lead a reasonable person in the employee’s position to conclude that the employer no longer considered itself bound by the terms of the TCSA. The trial judge also found that the respondent accepted this repudiation and was constructively dismissed. The employee was then awarded over $1 million in damages. The main share of the damages, $900,000, reflected a salary for the nine years that remained in the employee’s fixed-term contract. The employer appealed.

ONCA: Despite Delay, Damages Award Stands

The Court of Appeal found that the major problem, in this case, appeared to be delay. The employee did not purport to accept the employer’s repudiation of the contract until two years later, when the statement of claim was issued.

However, the court also found that the employee’s delay in deciding to file the claim had to be seen in the circumstances of his employment. This case concerned the former family business in which he had worked for over 30 years. The sale of the business was conditional on the parties entering into the TCSA, which effectively guaranteed the respondent employment in his chosen profession until he reached retirement age. Accordingly, the time taken by the employee to file a claim against his former family business had to be understood in that context, as well as the anxiety and depression caused by his employer.

The Court of Appeal upheld the Superior Court’s finding of constructive dismissal and the damages award.

Employers must be careful to uphold the terms of their employees’ contracts. Deviating from the employee’s employment contract in a significant way or changing a significant term of the employee’s contract can be costly if a court sides with the employee.

For advice on employer liability and other employment or labour law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.