B.C. Court of Appeal overturns lower court’s decision and finds constructive dismissal lawsuit did not repudiate employment contract
Reasonable notice while on leave
What happens if an employer in financial difficulty decides to close up shop while an employee is away on maternity or parental leave? Should it wait until the employee comes back before giving notice? It can be tricky when it comes to the legal right of an employee to be returned to similar position, but sometimes when an employer goes under, there simply isn’t a position, or even a workplace, left.
Employment lawyer Nikolay Chsherbinin looks at a recent British Columbia case that involved an employee who claimed constructive dismissal when her position was eliminated while she was away but didn’t pay her severance once her job was gone.
The case also raised another interesting issue: Does an employee filing a legal action against the employer — in this case an accusation of constructive dismissal — repudiate the employment contract such that it gives the employer just cause for dismissal?
A British Columbia employer was entitled to eliminate the position of an employee on maternity leave by winding up operations but constructively dismissed her when it delayed informing her of the dismissal, the B.C. Court of Appeal has ruled.
In Lewis v. Terrace Tourism Society, the B.C. Court of Appeal was faced with two intriguing issues: (1) whether an employee on maternity leave is entitled to receive reasonable notice of termination of her employment, if the employer ceased operations prior to her return; and (2) whether the employee’s commencement of a lawsuit against the employer, during the course of employment, amounts to just cause for dismissal. In a 2-to-1 decision, the court determined that during unpaid leave the employee’s legal right to reasonable notice does not change. While the majority found it unnecessary to decide the second issue, it raises an interesting question about the legal effect of a lawsuit, during the employment, on the employment relationship.
Position eliminated during maternity leave
Jennifer Lewis was the Executive Director of the Terrace Tourism Society in Terrace, B.C. While Lewis was on maternity leave, the society found itself in dire financial straits. The Society decided to wind up its operations and terminate Lewis’ position. As part of that process, it dismissed her temporary replacement, removed her signing authority, and closed her workplace. Having received no notice of termination of her employment or payment in lieu, Lewis brought a small claims action against the society seeking damages for constructive dismissal. As a result of that action, the society dismissed Lewis for just cause. In response, Lewis sued the Society in the Supreme Court of British Columbia seeking damages for wrongful dismissal or, in the alternative, constructive dismissal. That action was dismissed and Lewis appealed.
The dissenting judge in the Court of Appeal, Justice David Frankel, argued that during leave the employment relationship is essentially a shell, since the employee is not required to perform any services nor entitled to pay. Because the nature of the changes to the society’s operations had no immediate effect on Lewis’ employment status, Frankel saw no reason why the society should be expected to "keep an empty chair in an empty office" until her return from leave when it could formally give her notice. He found the society did not breach its obligations to Lewis prior to her commencing the small claims action, because it intended to pay Lewis severance. However, the society never gave her notice or paid severance.
Writing for the majority, Justice Risa Levine disagreed with Frankel’s conclusion, stating Lewis’ employment was at an end when the society decided to cease operations and terminate her position. Levine concluded the society effectively dismissed Lewis when it dismissed her replacement, closed her workplace and ultimately terminated her position without notice. The society’s delay in informing Lewis that her employment had ended, apparently because she was on maternity leave, amounted to the repudiation of her employment contract, which falls under the rubric of constructive dismissal.
Justice Levine found that despite Lewis’ absence on leave, her legal right to reasonable notice of termination was not suspended or altered. She relied on s. 67(1)(a) of B.C.’s Employment Standards Act, which expressly protects an employee on leave from being dismissed with notice that coincides with the period of leave. Accordingly, Levine determined the society’s "intention to offer severance sometime in the future did not keep the contract alive.”
No repudiation, no just cause
In reversing the lower court’s decision that Lewis repudiated her contract of employment by initiating her small claims action, the Court of Appeal found where all the elements of the employment relationship had ended with the society’s cessation of business, it would constitute a "trap for the unwary" to hold that an employee cannot sue for damages and assert her rights without risking a finding that she had, by doing so, repudiated whatever vestige of the employment contract might remain. Lewis was entitled to sue for wrongful dismissal and her commencement of the lawsuit did not give the society just cause for dismissal.
Suing employer while still employed
Commencing an action against an employer can effectively end the employment relationship. For example, in Zaraweh v. Hermon, Bunbury & Oke, the B.C. Court of Appeal found the commencement of a lawsuit was conduct "incompatible with the employee’s continued employment.” In Zaraweh, the employee sued the employer for wrongful dismissal damages during the period of working notice. Lewis is distinguishable from Zaraweh because the society gave Lewis no notice whatsoever. In this context, the society’s repudiation of Lewis’ employment contract renders the issue of "continuation" of her employment moot, thereby allowing Lewis to sue without risking dismissal for just case. These cases serve as a useful illustration that each case must be decided on its own unique facts.
Interestingly, an employer’s commencement of a lawsuit against an employee does not seem to signal the end of the employment relationship. One of the very few cases to deal with this scenario was the Saskatchewan Court of Queen's Bench decision McLean v. Conter Investment Ltd. Like Lewis, this case came before the court on appeal from a small claims judgment in favour of the employer for damages, in this case arising from the employee’s negligent operation of a truck. The court upheld the employer’s contractual claim against the employee and there was no suggestion the employer had breached the employment contract by suing the employee.
Either party to an employment contract has an option to sue for damages and continue the employment. In practice, this legal option is unworkable and very rarely used. Indeed, it is difficult to maintain a relationship of mutual understanding and respect when one party is suing the other.
Lewis is of interest to employers and employees alike. It clarifies that:
•The law applies evenly to employees who are dismissed while on leave.
•Employees’ legal right to reasonable notice of termination or severance is not suspended or varied while on leave.
•Employers are obligated to provide employees on leave with a timely notice of dismissal or severance.
•Employers cannot use leaves as an excuse for a delay in providing employees on leave with notice or severance.
•A delay in providing notice or severance, whether deliberate or not, may give rise to a claim for constructive dismissal.
•Employers cannot invoke the delay in providing employee’s notice or severance as a defence against the constructive dismissal claim.
This case is on its way to the Supreme Court of Canada, which will determine Lewis’ damages.
For more information see:
•Lewis v. Terrace Tourism Society, 2010 CarswellBC 1783 (B.C. C.A.).
•Zaraweh v. Hermon, Bunbury & Oke, 2001 CarswellBC 2195 (B.C. C.A.).
•McLean v. Conter Investments Ltd., 1998 CarswellSask 695 (Sask. Q.B.).