Evans v. Teamsters Local Union No. 31: Significantly Altering The Employer-Employee Power Balance?

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.