Saturday, August 21, 2010

Unconstructive Dismissal

Let's talk about two concepts: Constructive dismissal, and the duty to mitigate.

What is Constructive Dismissal?

Most people have heard of constructive dismissal. They have some vague idea that it means that, if they're mistreated, they can quit and still seek a payout. That understanding is pretty simplistic, overstated at the water cooler, but underclaimed in practice.

Essentially, the doctrine of constructive dismissal arises from the legal principle that the employer is not permitted to unilaterally make substantial changes to essential terms of the employment contract.

Unilateral is simple enough to understand: If you agree to a change in your contractual terms, it's not unilateral, and not constructive dismissal.

But what of the rest? Understand that employers naturally have significant discretion in controlling the workplace. They can assign new duties to employees, they can implement new policies, they can even modify compensation packages. If you're hired to do payroll, and you're asked to take on some tasks from accounts payable, answering "That's not in my job description" would be insubordination under most circumstances. The employer can rewrite your job description at will, within limits. And the limits are shown in that, if you're hired to do payroll, and your boss reassigns you to a janitorial role, that likely will be constructive dismissal. Demotions and changes which significantly reduce the prestige of a role are often constructive dismissal.

Likewise, what changes to remuneration are acceptable is entirely a matter of scale. I once saw a presentation by Matthew Certosimo in which he reviewed the jurisprudence and proposed a general principle that changes in remuneration of less than 10% will not be regarded as fundamental changes to the employment contract, reductions of greater than 15% will be, and anything between...are in a grey area, and would be fact-specific.

Constructive dismissal can also result from harassment and other ill treatment, but again, it's a matter of scale.

Matters of scale leave large grey areas, and lots of uncertainty. In constructive dismissal, uncertainty is deadly. If you think you're entitled to quit your job and seek a payout, and you do so, but the Court disagrees, you get nothing. You'll have your own legal fees, and likely have to contribute to the employer's legal fees as well. There you are, unemployed, mistreated, with no entitlements, and massive legal debts.

And there's another hitch too which is growing in the jurisprudence.

Mitigating Losses

When somebody breaches a contract or commits a tort, the innocent party has an obligation to mitigate his losses - that is, to take reasonable steps to prevent additional damages from occurring. If I contract to purchase 100 widgets from you at $10 each, and the market price drops to $8 each before the transaction is complete, then I might back out of the contract since I feel I'm overpaying. Let's suppose you wait an additional year before trying to sell the widgets, and by that time the market has completely fallen out and the market price is only $1 each.

What are your damages for my refusal to close the transaction? Well, the compensation principle says that you're entitled to be put into the same position you would be in but for my breach. If I hadn't breached, you would have had $1000. Following my breach, you only realized $100 from the widgets. So your damages are $900, right?

Not necessarily: the mitigation principle kicks in here, and says that you should have liquidated the widgets promptly so as to avoid incurring further loss. You had only lost $200 - not $900 - when I breached, and you could have and should have sold then. To the extent that you took a risk and didn't, why should I bear the burden of that risk?

That's what mitigation means. Put into the employment context, it means that an employee who has been terminated without sufficient notice needs to try to find a new job. That is, he or she should take reasonable steps to procure equivalent replacement employment. A high-powered executive doesn't need to take a job flipping burgers to mitigate, but should be checking out other executive-level positions in the area.

Essentially, the point of mitigation is that a wronged party cannot recover for a loss which he could have avoided. So if you fail to mitigate, then your recovery will be limited.

How Do You Mitigate Constructive Dismissal?

The answer in many cases seems to be: Don't quit.

This isn't a new proposition. In 1989, the Ontario Court of Appeal ruled in the Mifsud case that the plaintiff employee was constructively dismissed by a demotion, but...
"Where the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious (as in this case) it is reasonable to expect the employee to accept the position offered in mitigation of damages during a reasonable notice period, or until he finds acceptable employment elsewhere."
In other words, he was constructively dismissed, but it was nonetheless unreasonable for him to quit his job, and accordingly he could not recover.

Next up, Evans v. Teamsters, in which Mr. Evans was terminated, but the company offered him his job back on a contract basis up to the end of the notice period he was claiming. The Supreme Court of Canada followed Mifsud and concluded that it was unreasonable for him not to have accepted the job back.

And that's the way the jurisprudence is going now. See Loehle v. Purolator, which has similar facts to Mifsud: An employee was constructively dismissed by a demotion, refused the demotion and left, and the Court found that this was unreasonable - he should have kept the old job until he found a new one.

My Thoughts

I'm going up against some pretty tall authorities here (though even the Evans decision wasn't unanimous), but I think there is a big problem with this approach: When you can find that an employee has been constructively dismissed - as in, the employer has unilaterally made such a substantial change to the terms of the contract that it can be said to have fundamentally repudiated the contract - but the employee should keep the new job anyways, there's a disconnect. It becomes a right without a remedy. An obligation on the employer without recourse for its breach. Completely meaningless.

The standard for mitigation has traditionally been quite low. The employee is usually afforded a great deal of discretion. The employee is not expected to accept the first job that comes along. The employee is entitled to search for something equivalent to the old job. Aside from these "employment with the same employer" cases, I know of no authority which has ever suggested that an employee is obligated to mitigate by taking a lesser job on a temporary basis while searching for an equivalent job. So why are these cases any different? Why are the Courts in this narrow niche of cases telling employees, "Yes, you're entitled to treat the contract as repudiated, but you still have to stick it out until you find something new"?

In fact, I know of no principled reason why the standard for equivalency of employment for mitigation should be any different from the standard for equivalency in changing terms of the employment contract...and if there were a difference, I would think that the standard for mitigation would be easier to satisfy.

This is my proposal in a nutshell: If I am demoted in such a way that the demotion would meet the test for constructive dismissal, then the resulting job offer (i.e. of the lower position) prima facie fails to meet the standard of equivalent replacement employment, such that there is no obligation on the employee to accept it in mitigation.

Ultimately there is only one question here: Is the employee entitled to quit and seek reasonable notice? There is no reason whatsoever to need to apply both a constructive dismissal framework and a different mitigation framework to it. These should be consistent and lead to consistent results, rather than have inconsistent results rendering the other analysis meaningless.


This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.


  1. I have to agree that a substantially changed job cannot possibly meet the standard of equivalent replacement employment. I think the analysis needs to be: Did the employer irrevocably damage the employment relationship with the altered terms? (We apply this standard to employee misconduct, why not to employer misconduct? - I know in some human rights cases it seems to be applied to employer misconduct.)
    It all comes back to a fundamental flaw in employment law - which you tacitly bring up by mentioning the concept of insubordination: employment law is still rooted in master-servant law. The employer is treated like a lord: not the sovereign, but an authority above the peasants nonetheless. It can expect loyalty subordination. Employment law needs to be reformed to remove all these remnants of a hierarchical society that should no longer exist if we are actually committed to democracy.

  2. Thanks for the comment, Chris.

    I understand where you're coming from on the Master/Servant issue, but I don't think it's as bad as you believe these days. (Or, alternative, I think that what you're suggesting requires reform of the base principles of our economy writ large, and not just employment law.)

    I've seen circumstances, even in my own files, involving allegations of insubordination for not following directions which were arbitrary and counter-productive. And sometimes it's too hard to get in to challenge the legitimacy of these directives. The directive has to be (a) illegal, (b) issued for illegal (read: discriminatory) reasons, (c) unsafe (OHSA), or (d) sufficient to meet the test of constructive dismissal before you can really justify a refusal to follow it.

    But the threshold for cause is high. I would be loathe to recommend a for-cause termination on the basis of insubordination for refusal to follow a truly trivial directive.

    In the abstract, there are two questions: Who gets the benefit of statutory silence, and - with that in mind - what protections do we need to build for the other side?

    You want to change the answer to the second question. But if you modify the presumption of employer authority, then you also have to modify all the other protections which have been built in for employees - and these days, there are a lot.

    I'm happy to maintain current presumptions, and I think that constructive dismissal provides a lot of protection to employees...but my point is that this protection is undermined when the Courts are prepared to say that there *was* constructive dismissal but you *still* shouldn't have quit.