In Allen v Ainsworth Lumber Co Ltd, 2013 BCCA 271, the British Columbia Court of Appeal upheld a lower court decision which held that an employer’s refusal to allow an employee to work during a purported “working notice” period constituted constructive dismissal.
On October 14, 2009, Allen’s employer gave him a letter which provided notice that his employment would be terminated in 15 months. It stated that it would not be necessary for him to report to work during the notice period, and that he should focus his efforts on securing new employment. Allen was then escorted from the building and never returned. The next day, the employer announced that the Allen’s replacement would commence work in two weeks.
Allen took the position with his employer that the removal of his duties constituted constructive dismissal and argued that he was entitled to a lump sum payment of 15 months’ pay in lieu of notice under his employment contract, which provided:
Should it become necessary for Ainsworth Lumber Co. Ltd to sever our relationship, without cause, we will provide you with 15 months notice or pay in lieu pursuant to this paragraph shall discharge Ainsworth Lumber from any and all obligations which it may have to you arising from or in connection with this severance relationship.
The employer took the position that Allen was not dismissed under the terms of the October 14, 2009 letter until the end of the 15-month notice period in January, 2011, and that the acceptance of alternate employment during the notice period would constitute resignation, which would disentitle him to any further payment.
The employer likely took this position because the termination clause in the employment contract did not contain a duty to mitigate. As courts have held in several decisions, most notably in Bowes v Goss, an employee does not have a duty to mitigate contractual severance unless that duty is expressly included in the contract. Thus, if Allen was dismissed on October 14, 2009, he would be entitled to 15 months’ pay in lieu of notice under the termination provision, which would not be subject to reduction for any employment income received during the notice period.
The employer continued to pay Allen’s salary and benefits until he found comparable alternate employment in June, 2010. The employer took the position that Allen had resigned during his working notice period and ended the payments. Allen disagreed and brought an action for breach of contract. He alleged that he was constructively dismissed on October 19, 2009 when his duties were removed. He argued that under the terms of the contract, he was entitled to 15 months’ pay in lieu of notice and that he was not subject to the duty to mitigate. He was successful at trial, and the employer appealed to the British Columbia Court of Appeal.
The Court of Appeal emphasized that dismissal is a matter of substance over form, and that dismissal may result either from express notice or it may be implied from conduct of the employer that amounts to repudiation of the employment relationship. The Court stated that the test is objective: was notice of termination specifically and unequivocally communicated to the employee in such a manner that a reasonable person would clearly understand the employment contract was at an end?
While the employer had strategically phrased the termination letter so that the dismissal would not take place until 15 months after October 14, 2009, it removed all of the employee’s duties, required him to surrender his access card, removed his means of communicating with other employees and appointed a replacement. The trial judge found that, based on the evidence, Allen was constructively dismissed on October 14, 2009 and that he was entitled to damages equivalent to 15 months pay in lieu of notice. The Court of Appeal concluded that there was a sufficient evidentiary base to support the trial judge’s conclusion and upheld her decision.
Lessons for employers
This decision provides two important lessons for employers. First, termination clauses in employment contracts must be carefully drafted in order to ensure that they include the duty to mitigate. Second, as with many issues in employment law, dismissal is a matter of substance rather than form. While it may appear beneficial in some circumstances to purportedly provide an employee with “working notice” that does not require them to perform their duties, there is a significant risk that this could be considered constructive dismissal.
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