Constructive Dismissal and Offers of Re-employment

June 19th, 2014 by

Ira Marcovitch, Summer Law Student

Is an employee obligated to return to work after having been constructively dismissed in order to mitigate their losses? In its recent decision of Farwell v. Citair, the Ontario Court of Appeal replied no, not always. In fact, the Court held that such an obligation to mitigate only arises if the employer has made an offer of re-employment, be it in the previous role the employee occupied or a modified one, after the employee has asserted constructive dismissal.

For ease of explanation, the Ministry of Labour defines constructive dismissal as occurring where an employer makes a significant and unilateral change to a fundamental term or condition of an employee’s employment, thereby causing the employee to resign. Such may arise where an employee is demoted, or suffers a significant change in work location, hours, authority or position. This, of course, must be distinguished from other forms of wrongful dismissal where, unlike with constructive dismissal, the employer terminates the employment relationship. In the case of constructive dismissal, it is the employee, spurred by the significant change, who actually effects the termination of the relationship.

In the instant case, the Plaintiff, Kenneth Farwell, had worked for the Defendant Citair for the previous 38 years and, at the relevant time, was employed as their Vice President of Operations. As a result of restructuring and, as the Court felt obliged to point out, not as the result of any personal animus towards Mr. Farwell, his role was shifted to Purchasing Manager, a position he had held years earlier. In addition to a change in title, the trial judge held that such a shift represented a “significant loss of status and prestige” for the Plaintiff.

At trial, the Court found that Mr. Farwell had been constructively dismissed, and set the appropriate period of notice at 24 months. While the employer disagreed with this estimation, the crux of the issue between the parties was Mr. Farwell’s obligation to mitigate his damages, and whether he had done so.

At trial and on appeal, the employer argued that Mr. Farwell had a duty to mitigate his damages and, absent another job offer, was obliged to accept the job of Purchase Manager during the notice period. They argued that the salary and working conditions for the new position were essentially the same and that, had Mr. Farwell accepted, his damages would be nil. Further, they argued that where an employer’s restructuring serves a legitimate business purpose (as it did here) and is not simply a pre-text for dismissing an employee, the employee’s duty to mitigate includes accepting substitute employment during the notice period. In their view, for Mr. Farwell to refuse the continued employment was unreasonable in the circumstances.

However the trial judge, with whom the appellate judges agreed, found that Mr. Farwell was under no such obligation to return to work. While the Court held that an employee who asserts constructive dismissal and is then offered re-employment may be under a duty to accept, they found that Citair had extended no such offers in this case. Having found nothing to trigger Mr. Farwell’s obligation to return to work, the Court upheld the trial judge’s finding and award.

While Farwell exists as a topic of interest to those with similar curiosities as me, the case presents an important lesson to employers. In cases of constructive dismissal, employers should make sure to make an explicit offer of re-employment after the employee asserts constructive dismissal, thus avoiding the costly position that Citair found themselves in.

Find the full text of the decision here.

For more information regarding dismissal, wrongful dismissal, duty to mitigate and any other employment law related topic, please contact our Employment Law group at Devry Smith Frank LLP.

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