By Graeme McFarlane

Employers must be careful when implementing reorganizations. This holds particularly true when it comes to transferring managers into new roles. If not done properly, the company may face significant liability for constructive dismissal.

Jodoin v. Nissan Canada Inc
In the decision of Jodoin v. Nissan Canada Inc. the court was faced with a situation where the company had unilaterally moved a district sales manager into a newly created position of senior manager of the Vehicle Participation Programme. The employee kept the same pay, but had no reports and no program budget. Furthermore, the company advised the employee that he would have to leave his office and move to a cubicle.

After receiving news of this transfer, the employee sought information about the new position. In particular, he requested a job description and an overall understanding of how the company sought to integrate his skill set into the company’s objectives for both the short and long term. He also requested that he keep an office. The company did not respond in a meaningful way, and instead provided him with vague communications about is new job. Approximately two weeks after learning about the transfer, his replacement arrived, displacing him from his office to a cubicle.

What Constitutes Constructive Dismissal?
A month after his replacement arrived, the employee wrote to the company’s president and advised him that in the employee’s view, he had been constructively dismissed. The president did not respond and nor did any of the other managers who had been copied on the initial correspondence.

However, the company’s director of human resources did respond. She denied that the employee had been constructively dismissed and stated that the company “was not satisfied with [his] performance in [his] previous role and believed that this reassignment would provide [him] with the opportunity to take advantage of [his] core strengths.” The letter ended with the comment that there was no plan to exit the employee from the organization and was no a constructive dismissal since his pay and benefits had not been changed. The employee’s claim for severance was denied.

The employee stayed on for approximately one more month when he resigned. He then brought an action for constructive dismissal. The court agreed and awarded him $102,198 in damages which represented lost remuneration for the period of employment that followed his resignation.

Beware Altering Essential Terms of Employment
The judge in this case applied the test as set out by the Supreme Court of Canada in Farber v. Royal Trust, 1997 CanLII 387 where she considered “whether the unilateral changes imposed by the employer substantially altered the essential terms of the employee’s contract of employment,” based on the perception of “a reasonable person in the same situation as the employee.”

Based on the facts of this case, she decided that the continuation of salary and benefits was not enough given the other changes. Indeed, that preservation was the only essential element that was maintained. The title of “senior manager of VPP” was a hollow title as the employee had nothing to manage. The court held that an objective perception would be that the employee had been essentially demoted. He was moved out of his office, held no budget, managed no employees and had no job description.

The court further examined whether the employee had failed to mitigate his damages by resigning rather than accepting the modified position. It held that he was not obliged to stay with the company given the fundamental nature of the reduction in responsibility and status.

Care Essential to Internal Changes
This case is important to note because it illustrates the care an employer must take when making internal changes to its managerial structure. While the employer does have the right to arrange its business operations as it sees fit, it must tread carefully so as not to attract potential liability for constructive dismissal. In this case it is clear that the employer attempted to avoid this liability by keeping the employees salary and benefits the same. However, it so diminished the employee’s role that the court concluded (rightly in my view) that the restructuring was a sham and the role illusory.

In hindsight, with a bit more planning this outcome could have been avoided. Had the alternate position provided a platform where the company could have shown that he did not suffer an embarrassing situation, the employee would have likely been found to have caused his own damage by resigning.

A “real” job would have at least protected the company in terms of a mitigation defence. Even the provision of an office at the start would have greatly assisted.

Graeme McFarlane is a partner at Roper Greyell LLP, a firm focused on partnering with companies to find solutions to workplace legal issues.

(PeopleTalk Fall 2014)