Anticipatory breach of contract

Employee entitled to treat the changes in his employment contract as constructive dismissal

Harold Lewington began working for Pemberton Insurance Corporation in November 1993. The terms of his employment were laid out in a letter dated Nov. 25, 1993. Mr. Lewington was hired as an account executive and manager of operations.

One of the terms of his employment was the right to purchase corporate shares when the shareholder’s agreement and pricing was established. This was a significant inducement for Mr. Lewington to leave his former position as president and manager of another insurance brokerage to work for Pemberton.

When Mr. Lewington was hired the company president, Alan Finnie, was contemplating retirement and attempting to set in place a succession plan. It had been discussed that, on his retirement, the shares that he owned in Pemberton would be sold to the remaining executives in the firm, including Mr. Lewington. It was not until 1999 that Allan Finnie began to set his retirement plans in motion. By 1999 Mr. Lewington still had not purchased company shares.

One of Mr. Lewington’s job functions was participation in the executive committee of the firm. Also on the executive committee were Alan Finnie, his son, Roger, and Ann Harding. The committee met every two weeks to deal with issues and set policies and priorities.

When Alan Finnie decided to put retirement plans in place, he decided that his son Roger was ready and able to take over from him as president. He did not include Mr. Lewington in the preliminary discussion regarding the issues of transition and succession. Roger Finnie had agreed to take over as president of the firm in September 1999. Unbeknownst to Mr. Lewington, Roger Finnie entered into discussions with a former employee of the firm, Carla Eddington, about returning to the firm in a senior capacity.

Roger and Alan Finnie met with Mr. Lewington in late August 1999 to inform him of what was happening and of his future role in the firm in their view. He was to move from a blend of salary and commission to straight commission. He would no longer have the functions associated with being manager of operations. His title would change to senior account executive and Carla Eddington would manage the office. He would no longer participate on the executive committee.

At Mr. Lewington’s request, Pemberton put their proposal to him in writing on Sept. 2. Mr. Lewington responded in writing on Sept. 8. His letter outlined his understanding of the effect of the changes to his employment conditions contemplated by Pemberton. He concluded that he had been constructively dismissed and informed Pemberton that he was looking for a severance package commensurate with his position in the firm, his extensive management responsibilities and his compensation.

Roger Finnie responded disagreeing with his characterization and conclusions. He ended the letter by stating that if Mr. Lewington did not indicate his intention to return to work by close of business on Sept. 13, 1999, Pemberton would assume that he had chosen to resign in which case no severance package would be forthcoming. Mr. Lewington did not accept Pemberton’s response and brought an action against Pemberton for constructive dismissal.

In deciding whether Mr. Lewington was constructively dismissed the Court considered whether Pemberton had unilaterally changed his employment contract.

Pemberton took the position that the initial discussion and subsequent letter of Sept. 2 to Mr. Lewington merely outlined Pemberton’s proposal to stimulate discussion. Pemberton argued that Mr. Lewington was merely being opportunistic; he did not get along with Roger Finnie and took advantage of the discussion about changing roles to attempt to secure a severance package.

Mr. Lewington argued that by looking at the whole context of events and correspondence, the only logical conclusion was that the purpose of the retirement and succession plans was to take away any management or control of the firm from Mr. Lewington and deprive him of any opportunity to obtain a share in the ownership. Mr. Lewington relied on the fact that Carla Eddington was hired to perform many of his functions before the Finnies had even approached him with their “proposal” as evidence that the changes were made unilaterally.

The Court accepted the position put forward by Mr. Lewington. The actions demonstrated a strong indication of a desire to keep him in the dark and uninvolved in the planning process. The Sept. 2 letter presented a proposal in firm terms and provided little or no encouragement for variation.

Pemberton further argued that regardless of the firmness of the proposal, it did not amount to a constructive dismissal as the changes were within the terms of Mr. Lewington’s contract of employment.

The test of whether a constructive dismissal has occurred is an objective one. The Court held that Mr. Lewington was justified in regarding the changes brought by Pemberton as a fundamental anticipatory breach of his contract of employment and as constructive dismissal. The changes made to his role, remuneration, opportunity and status within the firm were such that by any objective measure they would be deemed fundamental.

Having found constructive dismissal, the Court awarded Mr. Lewington damages equivalent to a period of 12 months’ notice.

For more information:

Lewington v. Pemberton Insurance Corp., 2001 BCSC 1444.

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