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Deemed resignations and an employer’s duty of good faith

Failure to comply can render an otherwise enforceable agreement void and expose an employer to liability above and beyond damages for failing to provide appropriate notice of dismissal
employment law
In Jonasson v Nexen, Hans Jonasson was a long-service employee who decided he wanted to take a leave of absence from work. Google Street View

By Stuart Rudner and Brittany Taylor

It is common knowledge that an employee can resign from her employment at any time, typically by providing her employer with notice of her impending departure in accordance with the terms of the employment agreement in effect between the parties.

As we have written about previously, the courts have made it expressly clear that in order for an employee’s resignation to be effective, it must be clear, unequivocal and fully voluntary.

Furthermore, employers have an obligation to act in good faith when considering an employee’s apparent resignation, including in cases where the employee takes some time to cool off and later attempts to retract his resignation.

Based on the above, you can imagine that the courts would turn a fairly critical eye towards an agreement signed by an employee which provides that the occurrence of a specific event or condition will trigger the employee’s automatic resignation. However, such “deemed resignation” clauses may be appropriate, and enforceable, in certain situations.

A recent decision out of Alberta dealt with the enforceability of a “deemed resignation” clause as well as the issue of whether or not the employer exercised its discretion under the agreement in good faith.

In Jonasson v Nexen, Hans Jonasson was a long-service employee who decided he wanted to take a leave of absence from work. His employer agreed to provide him with the requested time off, but made it clear to him that there was no guarantee that a job would be waiting for him at the end of his leave.

The parties signed a leave of absence agreement which confirmed this, but also assured Jonasson the employer would make “reasonable efforts” to find him a job within the company. If no such placement could be found, the agreement provided that the employee would be deemed to have resigned from his employment at the end of the leave.

Unbeknownst to Jonasson at the time that he signed the agreement, the employer had already made the decision to proceed with a significant downsizing that would make it highly unlikely that a job could be found for him at the end of his leave. In other words, at the time that it entered into the agreement, the employer was well aware that Jonasson would likely not be able to return to work and chose not share this information with him.

At the end of the leave, there was no job for Jonasson to return to; the employer had already made up its mind that his employment would not continue. Relying on the terms of the agreement, the employer deemed his departure to be a resignation and, as a result, did not provide him with any pay in lieu of notice. Jonasson sued for wrongful dismissal.

The court agreed with Jonasson that the employer was not entitled to rely on the deemed resignation clause in the agreement. In this regard, the court found that there was no shared understanding regarding the terms of the agreement. Jonasson understood that he was receiving a promise that the employer would make “reasonable efforts” to return him to work. Given that the employer was aware, at this time, that it was likely that no efforts to find him a job to return to would be fruitful, the promise given was really “no promise at all.”

Further, although Jonasson had agreed that he could be deemed to have resigned, that consent was given with a less than fulsome understanding of the employer’s circumstances and was therefore not valid. In other words, the court found that there was no “clear, concrete and transparent condition” that Jonasson had agreed to which would trigger his resignation.

In this case, because Jonasson was deemed to have resigned “against his will”, due to the uninformed and involuntary nature of the consent given as part of the agreement, the employer had effectively dismissed him without cause. The agreement was therefore an attempt to deprive Jonasson of his minimum statutory entitlement to notice and/or termination pay, and, as a result, was void.

Even if the agreement had been enforceable, the court would have taken issue with the fact that the employer failed to comply with its duty of good faith in two respects. The first breach occurred when the employer entered into the agreement while deliberately withholding crucial information from Jonasson, which prevented him from being able to take steps to protect his own interests.

The second breach was with respect to the employer’s complete failure to make any “reasonable efforts” to return him to work, as was required by the agreement. In fact, the employer did not make any effort whatsoever to return Jonasson to work; it had already made the decision to end the employment relationship prior to the end of the leave.

In this regard, the employer was attempting to benefit from an agreement which it did not, itself, comply with, and which was entered into with a complete lack of honesty and candour on the part of the employer. The court found that the employer was deliberately attempting to evade its obligations to provide appropriate notice or pay in lieu thereof to Jonasson by entering into the agreement in the first place, and that the employer’s actions constituted bad faith conduct.

The court awarded damages equating to 22 months’ notice as well as an additional $20,000 in punitive damages.

Although the agreement given by Jonasson could not be enforced due to the employer’s decision to withhold crucial information that would have likely directly impacted his decision to enter into the agreement, it is possible that such a clause could be upheld where the consent given by the employee is clear, unequivocal and unambiguous, and the employer was honest and forthright regarding the circumstances.

For example, had the employer in this case been open and forthright with Jonasson from the beginning, and he had still chosen to enter into the agreement, the court may have agreed with the employer’s position that Jonasson had voluntarily resigned.

However, even if the agreement had been valid, the employer would still have been required to exercise its discretion therein in good faith. In that regard, the failure of the employer to make “reasonable efforts” to return Jonasson to work would still have been fatal to its case.

Employers should always keep in mind that there is a high standard with respect to employee resignations at law; the resignation must be clear, unambiguous and unequivocal to be effective. Deeming an employee to have resigned from her employment, absent a clear condition agreed to by the employee based on full and complete disclosure and appreciation of the potential risk, will not meet this standard.

Furthermore, an employer has a duty at law to act in good faith whenever it is exercising its discretion relating to an employee. Failure to comply with this duty can render an otherwise enforceable agreement void and expose an employer to liability above and beyond damages for failing to provide appropriate notice of dismissal.

Brittany A. Taylor is an associate at Rudner Law in Toronto.

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Stuart Rudner

Stuart Rudner, Employment Lawyer and MediatorStuart Rudner is the founder of Rudner Law (RudnerLaw.ca), a firm specializing in Employment Law and Mediation. He can be reached at stuart@rudnerlaw.ca, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.
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