Has an employee who is ‘walked to the door’ by his employer been fired or has he simply been subjected to a fundamental change in employment?
What if the employee was provided with “working notice” before being escorted to the door? Can someone be both: (a) escorted out of the building, told not to return, and announced as having “left the company”; and (b) an employee of that company at the same time? Or are those two positions mutually exclusive? Those were the question the Court of Appeal for British Columbia was asked to answer in the case of Allen v. Ainsworth Lumber Co. Ltd., 2013 BCCA 271 (CanLII).
As set out in the reasons for decision of the Court of Appeal for British Columbia:
The Plaintiff employee, Robert Allen commenced employment as the Chief Financial Officer at Ainsworth in November, 2003. He steered the company through a challenging period in the forest industry, during which Ainsworth underwent a major restructuring. In 2008, due to the company’s uncertain future and the consequent risk to Mr. Allen’s continued employment, Ainsworth revised his employment contract to improve the provisions governing his severance. On May 12, 2008 the parties signed an agreement with this provision:
5. 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.
Between 2003 and 2009 the appellant, Ainsworth Lumber Co. Ltd., employed the respondent, Robert Allen, as its Chief Financial Officer. On October 14, 2009 Ainsworth gave Mr. Allen a letter that purported to give him notice his employment would be terminated in 15 months. The letter also stated it would no longer be necessary for him to report to work, and his efforts should focus on securing new employment. Mr. Allen was “walked” from the building, and never returned. The following day, Ainsworth announced Mr. Allen had “left the company”, and his replacement would commence work on November 2, 2009.
Ainsworth continued to pay salary and benefits to Mr. Allen monthly until June 2010, when he obtained new employment that paid more than his salary from Ainsworth. Ainsworth stopped its payments on the basis that Mr. Allen had mitigated any further damages arising from his dismissal. Mr. Allen disagreed, and sued for breach of contract, alleging Ainsworth had dismissed him on October 14, 2009, he had no duty to mitigate, and he was entitled to the balance of 15 months’ “pay in lieu” as a debt due under his employment agreement.
In response, Ainsworth contended that on October 14, 2009 it had placed Mr. Allen on 15 months’ working notice, and the reassignment of his duties at that time constituted repudiation, rather than termination, of his employment contract. Ainsworth acknowledged that if Mr. Allen accepted the repudiation, he would be able to sue for wrongful dismissal, but said he would also be obliged to mitigate any damages. It contended that, when Mr. Allen accepted work with another employer, this constituted acceptance of the repudiation, and also fulfilled his duty to mitigate, relieving Ainsworth from any further financial obligations related to his dismissal.
Following a summary trial, a Supreme Court judge determined Ainsworth had dismissed Mr. Allen on October 14, 2009 and, under his employment agreement, he was entitled to 15 months’ pay and benefits in lieu of notice. She granted judgment for the balance owed, being $428,300.12 plus interest: 2011 BCSC 1707 (CanLII).
Positions and Arguments
Mr. Allen took the position that he had been terminated without notice and was entitled to a lump sum payment for 15 months’ salary and benefits. For its part, Ainsworth, the employer, argued that he had been given 15 months’ working notice of termination and, if he found new employment during that time, he would be taken to have resigned and Ainsworth’s only remaining financial obligation would be to “top up” his income for the remainder of the notice period if it was lower than his income at Ainsworth.
Decision of the Court of Appeal for British Columbia
The Court of Appeal’s decision contains a textbook review of the law of constructive dismissal. The decision is commended to those looking for an excellent summary of the topic.
However, after lauding Ainsworth’s counsel for setting out the law of constructive dismissal, The Honourable Madam Justice Neilson held, with respect to the actual case before the court:
 The difficulty [Ainsworth] faces is that, before getting to this analysis, it must first overcome the trial judge’s finding that Ainsworth’s conduct went beyond repudiation by simply changing Mr. Allen’s employment duties, and instead constituted a wholesale termination of the employment relationship, entitling him to payment in lieu of notice for 15 months under his employment agreement.
After affirming the trial judge’s decision that Mr. Allen was actually terminated on October 14, 2009, the Court of Appeal for British Columbia cited with approval the decision of Bowes v. Goss Power Products Ltd., 2012 ONCA 425, (canvassed by this blog in the post Fix the Duty to Mitigate ) in which the Court of Appeal for Ontario held that if an employment contract provides for a fixed severance package there is no duty on the employee to mitigate his damages, and held that as Mr. Allen’s employment agreement did not impose a duty to mitigate, the trial judge properly found he was therefore entitled to the balance owing for 15 months’ salary and benefits in lieu of notice as damages for breach of contract.
At its core, the legal question posed by this case is: was Mr. Allen fired or was he simply subjected to a fundamental change in employment? Both the trial judge and the Court of Appeal concluded that Mr. Allen had been fired. Given the facts of the case, I have to agree.
However, the Court also agreed with Ainsworth’s position that it could have terminated Mr. Allen’s employment by way of a constructive dismissal (which might have then required Mr. Allen to mitigate his damages – although given my comments below even of that point I am sceptical), thereby begging the question, what should have Ainsworth done differently? One supposes that if an employer wishes to advance the argument that it has not actually terminated the employee’s employment, the employer might be prudent to refrain from publicly announcing that the employee has “left the company.” The employer might also wish to allow the employee to continue to access the building and generally be seen as an employee.
The case thus stands as a cautionary tale for employers who may wish to structure the termination of their employee’s employment in a way other than a standard dismissal. While the Court of Appeal did say that employers are entitled to structure a termination as a constructive dismissal, what this case shows is that if the employer goes too far it will cross the line into an actual dismissal with all the repercussions that follow.
As to the amount awarded to Mr. Allen, reading the decision I very much expected to come to see the Goss Power decision cited as the reason the court awarded Mr. Allen the balance of his 15-months severance package. It was clear from the outset that the reason Mr. Allen was entitled to that severance package was because it was a fixed severance package for which he had negotiated when times were tough.
Now, that is not to say that all fixed-amount severance packages should be upheld and enforced by the courts. In some cases, the amount ‘negotiated’ will be illegal and in those cases the courts should not enforce such contracts. On this point see my comments in the post ONCA Upholds 15-Day Termination Provision - Important Lessons for the Suddenly Unemployed concerning the case of Musoni v. Logitek Technology Ltd., 2013 ONCA 622.
In Mr. Allen’s case, however, the severance package was obviously legal, fair and reasonable. When Ainsworth terminated his employment, which it unquestionably did, he became entitled to the package for which he bargained.
Takeaways for Employees
If you are an employee or if you are looking for work, it is always important to understand the terms of your employment agreement. Employment agreements can be negotiable, especially for executives and professionals. As the Allen v. Ainsworth case demonstrates, negotiating for a fixed severance package can be a good idea.
If you would like to have your employment agreement reviewed or negotiated, or for any other employment law issue, the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP would be happy to be of service to you.
To reach the author of this blog, Sean Bawden, email firstname.lastname@example.org or call 613.238.6321 x260.
Takeaways for Employers
As mentioned above, the case is a cautionary tale for employers who wish to limit their liability on termination. While there is no shortage of creative ways to end an employee’s employment while trying to limit costs, the challenge is that one person’s good idea is another person’s sticking point.
If you are an employer in Ontario and are considering terminating the employment of one of your employees, it may be prudent to seek professional legal advice before doing so. The professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP would be happy to be of service to your business or organization.
To reach the author of this blog, Sean Bawden, email email@example.com or call 613.238.6321 x260.--
As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.
Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, and part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.