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On May 1st, the Supreme Court of Canada issued its decision in Evans v. Teamsters Local Union No. 31, 2008 SCC 20 clarifying treatment of the issue of mitigation in employment law. With this decision, it has markedly altered the treatment of breach of employment contract in a manner that profoundly disadvantages wrongfully dismissed employees, while favouring employers who illegally terminate their workers.
This was an unfortunate case for the Court to have used to revisit the question of mitigating damages in breach of employment contract case. It arose out of a complicated and unusual set of facts. The lower courts, and even the majority and dissent at the Supreme Court, disagree about their acceptance and interpretation of the facts (these facts and the lower court decisions are well set out in an earlier post on TheCourt.ca ).
Perhaps in part because of this confusion surrounding the facts, this case has resulted in a majority decision that may make mitigation issues easier to decide, but distorts employment law principles in favour of employers, forgetting the unique nature of employment contracts, and seemingly overlooking the key fact that wrongful dismissal cases are fundamentally about an employer that has breached its contract of employment with an employee. This case produced a six-justice majority opinion drafted by Bastarache J., and a strongly worded dissent by Abella J. that contested virtually all factual and legal conclusions of the majority.
Though this was a complicated decision touching on many aspects of termination of employment contracts, this article addresses the three main conclusions of the majority in the matter, each of which is problematic.
Wrongful dismissal and constructive dismissal
First, the majority held that there is no principled reason to treat constructive dismissal and wrongful dismissal cases differently in terms of mitigation. It based its conclusion on the view that the key element in both types of cases is that the employer has terminated the employment contract without cause. Abella J., in her strongly worded dissent, disagreed, contending that these two types of dismissal are conceptually distinct, the differences are important, and that courts have consistently recognized these differences.
The majority’s characterization of these two types of dismissal is overly simplistic, ignoring important differences between the two situations. In a wrongful dismissal case, the employer has terminated an employee without cause, and without providing either sufficient notice of the termination, or compensation equal to the pay and benefits due during the notice period. The employer has breached the contract of employment; the dismissal is “wrongful.” Immediately upon termination, as Abella J. points out, the employee is entitled to an action in damages and, quoting from a recent article by Professor Judy Fudge: “the employer has lost the ‘right of control’ and the employee has lost the ‘open-ended duty of obedience’.”
In contrast, constructive dismissal occurs when an employer alters or breaks a fundamental term of the employment contract. This most commonly happens when an the employer unilaterally changes the terms or conditions of the employee’s position such that it has, essentially, removed the employee from his original position and replaced it with a new job. When this occurs, the employer has the choice of either accepting the new terms of employment, or regarding it as breach of contract, whereupon the contract is terminated and the employee is immediately entitled to sue for damages.
Once the contract is at an end, the employee cannot have any further obligation to his former employer. The contract comes to an end at different times in wrongful dismissal (at the time termination) and constructive dismissal (when the employee chooses to treat the employer action as termination). These differences are relevant to whether it is likely that it will be reasonably possible for the employee to remain in that workplace to mitigate damages. Abella J. suggests that it is more likely to be reasonable in the constructive rather than wrongful dismissal context. Yet, even there, it will be rare to find this reasonable.
The key to this is the fact that, in neither constructive nor wrongful dismissal cases, is the employer justifying the termination on misconduct or incompetence by the employee. There is no “cause” for the termination. The employee is without fault; the employer is the wrongdoer in both cases. The employer has breached the contract of employment – either by dismissing without notice or pay in lieu of notice, or by changing a fundamental term of the contract.
The majority, unfortunately, appears to lose sight of this crucial fact. Rather than focusing on remedying the breach of contract and treating mitigation as a reasonable limit to damages, it focuses on identifying the employee’s obligations to his or her former employer. It largely ignores that the employer is the wrongdoer in this legal story and the employee is the innocent party.
Conflating termination with notice and termination with later offer of re-hiring
A further troubling conclusion of the majority is that there is “very little practical difference” between terminating an employee with notice (which is not a breach of the employment contract), and terminating an employee without notice (which is a breach), but then offering the worker a new, limited period of employment. The majority identifies the key common element as being that “In both situations, it is expected that the employee will be aware that the employment relationship is finite, and that he or she will be seeking alternate work ….” Bastarache J. went on to say that:
In either case, the employee has an opportunity to continue working for the employer while he or she arranges other employment, and I believe it is nonsensical to say that when this ongoing relationship is termed “working notice” it is acceptable but when it is termed “mitigation” it is not.
It is the difference between the two situations that is of greatest importance: in the latter the employer has breached the contract; in the former, it has not. The majority appears to lose sight of this and seems to largely ignore the fact that the employer has violated a contract and is the wrongdoer in termination without notice cases.
This odd perspective is emphasized by the majority’s statement that:
[A]bsent bad faith or other extenuating circumstances, [employers] are not required to financially compensate an employee simply because they have terminated the employment contract.
This is simply incorrect. In wrongful dismissal and constructive dismissal cases employees are entitled to damages precisely because the employer has terminated the contract by breaching it.
In dissent, Abella J. takes issue with the majority’s conclusion, contending that it “[F]undamentally changes the obligations of an employer upon termination and appears to remove critical protection from an employee at a time when, as this Court observed in Wallace, “the employee is most vulnerable.”
Even following the majority’s interpretation of the facts, what still occurred was a wrongful firing – wrongful because it was without notice. Once an employee has been fired, the employment contract has been breached and is at an end. The employment relationship is terminated and cannot be “revived” as the majority appears to suggest, by subsequent discussions of returning to work. This is fundamentally unlike a situation where an employee is terminated with notice. There, the employee will continue to work in their position, in the workplace, until the end of the notice of termination period, when termination actually occurs and the employment contract comes to an end.
Objective test for mitigation
The third problematic conclusion of the majority was that an objective test is to be used to determine whether a reasonable person in the employee’s position would return to work for the terminating employer, thereby mitigating damages.
Abella J. rejected this objective test and pointed out in dissent, this “raw application” of the contract principle of mitigation ignores the unique nature of employment contracts. It also threatens to make it the norm that employees will be expected to accept re-employment with the employer that illegally terminated them, or, forgo damages. This, Abella J. notes, also has the danger of ignoring the principle that employers are not entitled to specific performance, because to order an employee to work for a particular employer is to run the risk of converting a contract of personal service into “contracts of slavery.”
Conclusion
The Supreme Court has now left employees with even less protection in the event of being improperly terminated, choosing instead to grant employers more flexibility and discretion in seeking to limit the costs to them of breaching their contracts of employment with their employees. A fine May Day for Canadian employees, indeed.
3 Comments
This is a strange article, considering it was written by a law professor.
The underlying premise of writer seems to be that function of wrongful dismissal actions is to punish employers for their wrongdoing, rather than compensate employees for their resulting losses. There is absolutely no support in law for this point of view.
It's an elementary proposition that a civil wrong which results in no harm requires no financial remedy. All the court is saying is individuals have an obligation to take reasonable steps to avoid or minimize the harm resulting from a wrong which is committed against them. You'd have to have a very punitive view of civil law not to see the sense in that.
The Supreme Court has, in another recent decision, rolled back the punitive damages expectations of wrongful dismissal litigants, and this decision merely reinforces its message that people have some individual responsibility to deal with the consequences of termination.
Let's stop promoting a "society of victims" here in Canada.
The Supreme Court has left employees with the protection they need - the ability to seek compensation when reasonable efforts don't result in mitigation during the period of reasonable notice.
The decision makes strict legal sense. I suppose you can mitigate your damages anywhere including working in some pretty uncomfortable and distasteful jobs. I just have a hard time seeing how the decision will work in a practical real life sense. From the employee's perspective, they have just been let go and being required to work in that environment will likely not be a dignified productive experience. From the employer's perspective, they've just let someone go and now they want them to stay on just to save a few bucks?
In the situation where the split is amicable enough to allow mitigation according to this case, the parties will have to be incredibly mature, performance issues will be non-existent and the finger pointing will have to be at a minimum.
This case was decided on a very unusual set of facts in that the local labour market where Mr. Evans worked was extremely constrained in terms of comparable job opportunites which it offered for someone in Mr. Evans' position. The only suitable available alternative was the one offered by Mr. Evans' previous employer.
In my view, the case stands for the very narrow proposition that if an employee is terminated in circumstances where conditions in the local labour market are such that the only suitable alternative employment available to the terminated employee is a position which is offered by the same employer who was responsible for terminating the employee's original employment contract, then the employee's obligation to mitigate requires the employee to accept the alternative employment so offered however distaseful this may be to the terminated employee.
The law requires an injured party to take reasonable steps to mitigate the losses which flow from a breach of contract. Unfortunately, what the court failed to address in this case was the underlying issue of whether, in a labour market where there are no suitable alternative employment opportunities, and where the employer has defeated the terminated employee's expectation of continuing employment, it is reasonable to expect the employee to mitigate its losses by accepting a job offer from the employer who has just fired the employee.
Given that the employer's act of terminating the contract was a unilateral one which, in the process, destroyed the entire relationship of trust that was the basis for the continuing contract of employment between the parties, one would think that the correct conclusion in this situation would be that - yes, Mr. Evans did have a duty to take resonable steps to mitigate his losses but, in the circumstances, it was not reasonable to expect him to accept a job offer from an employer who, by its previous conduct, had shown itself to be an unreliable party to deal with.