Friday, 21 October 2016

Trial Judge Finds Mitigatory Earnings too Insignificant to be Deducted from Wrongful Dismissal Award

(c) istock/OlafSpeier

The application of the duty to mitigate to the post-termination earnings of wrongfully dismissed employees is probably the most reviled subject that an Ontario employment lawyer will have to discuss with his employee clients. (By contrast, it is a favourite subject of employers.) In short, the doctrine essentially provides that an employer is entitled to the set-off of any post-termination dollars earned by the dismissed employee during the reasonable notice period. As the case of Davidson v. Tahtsa Timber Ltd., 2010 BCCA 528 (CanLII) demonstrates, sometimes by virtue of an employee’s success in finding new employment, an employee can be completely shut out from being awarded anything notwithstanding being wrongfully dismissed.

But what happens when an employee takes a new job not so much to “mitigate her damages”, but rather to survive? More to the point, what if that new position is so much beneath the wrongfully dismissed employee’s previous position that to deduct such earnings would work a disservice to the employee?

In the case of Brake v PJ-M2R Restaurant Inc., 2016 ONSC 1795 (CanLII), the Honourable Justice Kevin B. Phillips of the Ontario Superior Court of Justice sitting at Ottawa held that a wrongfully dismissed employee’s ability to find employment did not take away from the loss she suffered from being dismissed without cause. Moreover, her new position, that of a cashier, was so substantially inferior to the managerial position she held with the defendant that, “the former does not diminish the loss of the latter.” As a result no deduction was applied on account of the mitigatory earnings.

Facts

The case concerned Esther Brake, who worked for McDonald’s restaurants for more than 25 years. A substantial part of that career was spent in the employ of the defendant, PJ-M2R Restaurant Inc., a McDonald’s franchise holding company with several restaurants in Ottawa.

On August 2, 2012, PJ-M2R terminated Ms. Brake’s employment.

Ms. Brake claimed that she was wrongfully constructively dismissed and sought damages for common law notice plus severance pay in accordance with the Employment Standards Act, 2000 (“ESA”). The defendant employer responded that it had every right to terminate her employment since, despite considerable effort to assist her in meeting the standards expected of her position, she simply failed to do so and had to be let go.

Following the trial of the case, the trial judge made the following findings of fact:

  • Esther Brake began working for McDonald’s restaurants in 1986 in Corner Brook, Newfoundland. In 1999, she moved to Ottawa and began working for the Defendant. In recognition of her experience and the associated value that she was bringing with her to PJ-M2R, she was accepted into the PJ-M2R milieu as if already having 7 years of full-time service to that entity. I find that as of August 3, 3012, Ms. Brake had the equivalent of 20 years employment history with the Defendant.
  • From 1999 to 2004, Ms. Brake worked for PJ-M2R in a variety of capacities. While there were some ups and downs throughout these years, she remained in the Defendant’s full-time employ. Finally, in 2004, Ms. Brake was promoted to the position of store manager with respect to one of PJ-M2R’s McDonald’s locations.
  • In 2008, Ms. Brake was transferred to manage PJ-M2R’s Kanata McDonald’s. As part of her duties there, she also managed a nearby McDonald’s located within a Wal-Mart. Eventually, in November, 2011, Ms. Brake was assigned exclusively to the Wal-Mart location.
  • From 2000 to 2007, Ms. Brake received an overall rating of “excellent” in all of her evaluations.
  • In 2008, Ms. Brake managed Kanata and the Wal-Mart location, and received an excellent review.
  • High overall ratings continued throughout 2009. Esther was rated “excellent+”
  • In 2010, Ms. Brake received an overall “excellent” rating.
  • In November 2011, Ms. Brake received her first negative performance review. The judge accepted her evidence that she was “dumbfounded” and “shocked”. She did not expect this review, and was “blown away”. The court accepted Ms. Brake’s evidence that in all her years of service she never had any indication that her position was in jeopardy or that her performance as a store manager was anything less than excellent. In fact, only one month prior to the November 2011 review, the store’s owner had arranged for Esther to attend a managers’ convention in Niagara Falls.
  • During the November 2011 review, Mr. McKenna told Esther that she would be transferred to the Wal-Mart location. This was presented as an opportunity for her to improve her performance. The Wal-Mart location was significantly smaller with far fewer sales, and consequently had far fewer staff. I accept the evidence of Ms. Brake to the effect that the Wal-Mart location was more difficult to manage. There was high staff turnover and less staffing, which meant that the manager on duty was expected to cook, serve customers and keep the restaurant clean. The Wal-Mart location had been trending badly since at least April 2011. According to McDonald’s corporate documentation, the Wal-Mart location had failed 8 out of 12 customer service opportunities over that year. It ranked 1,410 out of 1,437 restaurants in Canada.
  • That the Wal-Mart location was trending badly was well known to the Defendant. In fact, it was acknowledged that for Ms. Brake to have any success there she would first have to turn the place around. The owner agreed that the Wal-Mart location was struggling. He expected that “someone with Esther’s experience should have been able to turn around a restaurant like that.”
  • On August 2, 2012, Ms. Brake was told by the Defendant that she had failed the Goals Achievement Process (“GAP”) program and that they needed to discuss her future. Ms. Brake argued that she ought to be allowed to stay on as a manager. The owner responded that that was not an option; she had to “take a demotion or go”. Ms. Brake was offered the position of first assistant. The salary would be the same but the benefits would be meaningfully inferior. Moreover, she would be reporting to some of those whom she had trained and supervised, many of whom were much younger and less experienced. On cross examination, the owner agreed that Esther was entitled to be embarrassed by the demotion.
  • Ms. Brake refused to accept the demotion and left never to return. The termination of her employment “for cause” was sent to her in writing soon thereafter.
  • Ms. Brake had long had another job at Sobey’s as a cashier, a fact that was always known to the Defendant. After August 2012 she increased her hours at Sobey’s. In addition, Ms. Brake made other efforts to mitigate her damages. From October 2012 until mid-January 2013, she worked 30-36 hours per week at Tim Horton’s. Her hourly wage was $11.25. I accept Ms. Brake’s testimony that she attempted to start a babysitting service and cleaning service. She made phone calls, put up posters and posted an advertisement for both businesses on Kijiji. I further accept that by January 2013, Ms. Brake realized that the businesses were not working and that she needed to find another source of income. Accordingly, she applied for several positions including as a McDonald’s mystery shopper, store manager and front store supervisor at Shopper’s Drug Mart, overnight supervisor at Home Depot, part-time cashier at IKEA, store manager at Mark’s Work Warehouse, supervisor at Costco, assistant store Manager at Loblaws, store manager at Dollarama and various other positions at Bed, Bath and Beyond, Swiss Chalet, LCBO and Target. Ms. Brake had not been offered a management position with any company since her termination. In March 2013, Ms. Brake accepted a position as a cashier at Home Depot. She works approximately 35-38 hours per week and earns a wage of $12.50 per hour. She continued to work there to at least the trial.

Decision

On the issue of whether the employer had legal “just cause” to terminate the employment relationship, Justice Phillips ruled as follows:

[16] While probably not a perfect employee in every respect, I cannot agree that Ms. Brake was incompetent at her job such as to warrant dismissal from it. She was an overall competent manager with a long track record of successful contribution at the standard expected of her position. The performance appraisals filed over a considerable timespan can lead to no other conclusion.

[17] There is some evidence that Ms. Brake ran into some difficulty in late 2011 and into 2012. That time period cannot be looked at in isolation; Ms. Brake had built up such lengthy history of effective contribution to PJ-M2R that she was entitled to fairness and reasonable assistance in meeting her employer’s apparently now unmet expectations. In any event, even if cherry-picked out from the larger context, those difficulties do not in my view amount anything close to gross or serious incompetence. There is no evidence that could possibly lead to any conclusion that the Defendant’s business interests were being compromised by Ms. Brake’s employment. The difficulties at Wal-Mart, for instance, precede Ms. Brake’s arrival there as manager and involve circumstances outside of her exclusive control. Besides, by the end of the GAP program she had met the Defendant’s new and improved standards. She was trending upward at an extraordinary degree when the decision to demote her was put on the table.

[18] Even if taken at their highest and in aggregate, the complaints about Ms. Brake’s employment performance outlined by the Defendant do not amount to cause for dismissal. There was far more right about her performance than wrong with it. Every witness testified to her outstanding work ethic. The worst I heard about her work in any real sense was that she was brusque and did not always do well in managing the “younger generation that requires more pleases and thank yous”. Indeed, Esther Brake is most impressive; a single mother who devoted herself to the advancement of the Defendant’s interests for many years with considerable success.

[19] Ms. Brake was not given any clear and reasonable opportunity to correct the alleged issues that the Defendant was having with her employment performance. She was transferred to a flailing branch and expected to turn it around and perform there in excess of the standards that had been accepted of her in the past. The GAP program as implemented by the Defendant was arbitrary and unfair. There was no objective basis for the goals set; they were meaningfully more onerous than usual and in excess of those set by McDonald’s generally. These extraordinary expectations were both unjustified and impossible to meet.

[20] Ms. Brake was not even kept informed of her performance under the GAP program in the way the program itself stipulates. I do not see the rationale in advising an employee of her 30 day performance nearly half-way to the 60 day mark given the overall timespan involved.

[21] I find that Ms. Brake was set up to fail from the beginning of the GAP program. Not even the fact that she did ultimately manage to meet the Defendant’s heightened expectations could save her in the end. Well before the completion of the GAP, Ms. Brake’s removal from her manager position was a foregone conclusion. Given the length of her employment and her loyal history of contributions to the organization, she was entitled to expect more assistance in overcoming her newly alleged shortcomings. I find the GAP program as implemented by the Defendant was less an instrument of help than it was a way to record Ms. Brake’s anticipated inability to meet the Defendant’s shifting expectations in order to justify a decision that had effectively already been made.

[22] I heard from many witnesses. In a very real sense, I got to know the culture at PJ-M2R and how Ms. Brake came to fit into it. I find that it would have been unreasonable in the circumstances to have expected Ms. Brake to accept a demotion and continue working for the Defendant. I recall the evidence of employees Mr. Weaver and Ms. Todd as being downright insulting to Ms. Brake and her personality and abilities. In many respects the same could be said about the evidence of both Perry and Jo-Ann McKenna [the store’s owners]. In my view, it is perfectly understandable in the circumstances that Ms. Brake would find working under Matt Ridgeway, the young man she trained, as embarrassing or even humiliating. Much more than money was at stake here. Clearly, by August 2012, through no fault of the Plaintiff that I could discern, any relationship that ever existed involving these parties had irredeemably come to an end. I am persuaded that Ms. Brake’s decision to consider herself constructively dismissed notwithstanding the offer of continued lesser employment was objectively reasonable. She could not have been expected to continue with PJ-M2R given the way they had treated her.

[23] I find that in the overall circumstances, PJ-M2R unilaterally made a substantial and fundamental change to Esther Brake’s employment contract and that in doing so constructively dismissed her without cause.

On the issue of the amount of pay in lieu of reasonable notice to which Ms. Brake was entitled, and the effect of her efforts to try to mitigate her damages, Mr. Justice Philips reasoned as follows:

[24] At the time she was constructively dismissed, Esther Brake was 62 years old (she is now 65). She had worked for McDonald’s in some capacity for the majority of her working life. She had effectively worked for the Defendant for 20 of those years. She has little in the way of formal education. She rose to a management position through perseverance and hard work. Her knowledge and skills are mostly applicable to only the McDonald’s environment, a work place that very much has its own unique culture, language and ways of doing things. Since her dismissal, despite her reasonable best efforts, she has not managed to secure a reasonably comparable managerial position. I find that her subsequent employment represents a reasonable effort on her part to mitigate her losses. However, I also find that her ability to find employment does not take away from the loss she suffered from being dismissed without cause. The cashier position she occupies now at Home Depot is so substantially inferior to the managerial position she held with the Defendant that the former does not diminish the loss of the latter.

[25] Given the Plaintiff’s age, the length and nature of the employment, the manner in which she was dismissed by the employer, the low likelihood that she will ever again attain a similar managerial position and the impact on her of being unjustly dismissed in the context of her character, reputation and circumstances, I conclude that a fair compensatory notice period in this case is one of 20 months. That 20 months is inclusive of any statutory severance required by section 64 of the ESA.

According to media reports, the employer appealed.

Commentary

There are really two aspects to the decision, one is whether the court was right to find that Ms. Brake was constructively dismissed rather than being terminated for just cause, and the second is the issue of mitigation.

On the issue of constructive dismissal versus just cause, on the facts as reported by the trial judge it appears very clear that Ms. Brake was constructively dismissed. To allege that she was somehow dismissed for just cause simply defies logic.

The mitigation issue is more academically interesting. Should the court deduct ‘minor’ earnings if the reason that they were earned is to enable the wrongfully dismissed employee to keep the lights on and survive?

As far as I am advised there is currently no decision directly on point. If anyone is aware of one I am sure that counsel for both parties would be interested in learning of it, as would I be.

In my own personal opinion, I respectfully believe that the court erred in failing to deduct the mitigatory earnings. I believe that such earnings should have been deducted from the overall award.

I hold this opinion for two reasons, as set out below.

First, the law with respect to the duty to mitigate and the effect of earning post-termination wages is well-settled law in Canada. I see no reason to divert from such principles.

Second, as to the public policy argument that the duty to mitigate should not be applied in cases where the person only takes new, lower, employment in order to survive, I look to the provisions of the Employment Insurance Act, S.C. 1996, c. 23. As I explain in my post E.I. E.I. Oh!, pursuant to section 45 of the law governing EI, if someone receives EI and then is later awarded wrongful dismissal damages, the wrongfully dismissed employee must legally repay EI a portion of what is awarded as wrongful dismissal damages. There can be no doubt that EI is about as little as one can receive post-termination. If the statutory law provides that a wrongfully dismissed employee, who subsisted on no more than EI, must repay that amount to the government, then surely the common-law must apply a similar set-off in respect of mitigatory earnings, regardless of how minor.

Do not get me wrong, I hear the argument that by applying a deduction in favour of any mitigatory earnings while also holding that employees need not accept the first job the comes along (see comments in my post The Duty to Mitigate: Employees Not Required to Accept a 'Bird in the Hand') a two-tier system is created the favours the wealthy. But the same does not address the fundamental principle of reasonable notice: to bridge an employee from one position to another without economic loss. Ms. Brake was able to secure new employment. True, it was not at the level that she previously enjoyed and that is unfortunate, but she did find new employment, which paid her a salary. The law says that such earnings must be deducted from the award of common-law pay in lieu of reasonable notice; to not do so, essentially out of compassion, is to err.

Whether the Court of Appeal ultimately agrees with me is to be seen. If that court feels like citing this post in their reasons for decision that would be most welcomed.

Takeaways for Employees with Labour Pains

The takeaway for employees comes more from my commentary than the decision: Subject to what the Court of Appeal for Ontario has to say, in almost, but not all, cases, employees must “mitigate their damages.” (See my post Fixing the Duty to Mitigate, concerning the case of Bowes v. Goss Power Products Ltd., 2012 ONCA 425 for a discussion of the exception to the rule.)

Where an employee is fortunate enough to find new employment, such good news can result in a serious reduction in the amount of wrongful dismissal damages to which an employee is otherwise entitled. That may seem unfair, sometimes painfully unfair, but it is the law.

If you are an individual looking for assistance with respect to the termination of our employment, contact the experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for Employers with Labour Pains

The lesson for employers from this case is be careful in alleging just cause for termination. Although the employer was ‘only’ dinged for reasonable notice in this case, the award was for over $100,000. The employer had options to terminate Ms. Brake’s employment the right way, with significantly less media exposure, and a much reduced cost.

If you are an employer and you need to make changes to the terms of your employee’s employment, contact the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP; we would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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