Ontario manager resigns to avoid investigation into time theft

Restaurant employee also claims constructive dismissal

Ontario manager resigns to avoid investigation into time theft

In Ontario, the bar for constructive dismissal in the common law and employment standards legislation can be at odds with each other, according to Michael Horvat, a partner in the Workplace Law Group at Aird & Berlis in Toronto.

“If you're an employee who claims to have a constructive dismissal [under employment standards legislation], you have to act upon it within a reasonable period of time and essentially can't wait to see what happens,” says Horvat.

“It's a bit of a disconnect, because at common law there is some expectation to at least try to mitigate your damages and resignation in the context of a constructive dismissal is supposed to be limited to circumstances in which the employee cannot reasonably fairly mitigate their damages.”

An Ontario employer and a former worker discovered the difference between the two standards when the Ontario Labour Relations Board determined that the worker resigned to avoid an investigation into time theft — rather than the employer’s failure to pay him holiday pay.

Time theft investigation

KX Coffee Bar is a coffee and wine bar in Toronto operated by KX Health. It hired the worker in June 2020 to be the bar manager.

On Jan. 4, 2022, KX launched an investigation into alleged time theft by the worker.

The president of KX Health informed the worker about the investigation at Feb. 4 meeting. The president and general manager told the worker that although they were investigating suspected time theft, they wanted to keep him as an employee and they would come up with a resolution. According to the worker, they said that KX would withhold wages from him upon completion of the investigation to repay the money, and he would be terminated if he failed to comply.

The worker looked into his hours and payments and realized that KX hadn’t paid him statutory holiday pay for any of the 16 public holidays over the course of his employment. In addition, the worker had worked on five of the holidays and didn’t receive the premium pay to which he was entitled under the Ontario Employment Standards Act, 2000 (ESA).

The worker came to a second meeting on Feb. 22 with a document outlining unpaid overtime, statutory holiday pay, and vacation pay, along with a promise-to-pay agreement. The worker gave the president an ultimatum to sign the agreement by 10 a.m. the next day.

The president said that he would have a lawyer review the claims, but this made the worker believe that the claims “did not resonate” with him.

The worker left work and didn’t return. The president emailed him to ask if he would be attending to his scheduled duties, but the worker emailed later to confirm what he was owed. He also said that for the president to contact him after hours meant that he hadn’t “fully absorbed the content of our discussion.”

Employers should be aware of which changes can safely be made to an employment contract.

Worker didn’t return

The worker said that he was “emotionally and mentally distraught” with anxiety that made him unfit for work and asked a co-worker cover his shift the next day.

KX declined to pay the claims or sign the promise-to-pay agreement. The worker didn’t report for work on Feb. 23, so KX emailed him to say that it understood that he had resigned from his position. The worker later confirmed that he resigned, but it was because of constructive dismissal from the lack of communication and failure to pay holiday pay.

A short time later, KX’s investigation concluded that the worker had claimed and received pay for a total of 47 hours during which he had not been at work.

KX could have made things smoother if it had been more timely in its decision-making, says Horvat.

“[KX] should have been timely in respect of its payments and determination as to whether the [worker] was eligible [for vacation pay], its knowledge of the ESA, and then with respect to its investigation,” he says. “If it was intending to [discipline or] terminate the employee for what it said was time theft, the delay here allowed this situation to get worse.”

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Employment standards claim

The worker filed an employment standards claim for unpaid statutory holiday pay and termination pay for constructive dismissal. An employment standards officer determined that the worker was a manager and not entitled to overtime pay but issued an order to pay for unpaid statutory holiday pay and termination pay for constructive dismissal.

KX filed an application for review of the order to pay.

The board found that there was no evidence to show that the worker’s time theft was sufficient to meet the ESA standard of “wilful misconduct, disobedience or wilful neglect of duty” that would warrant the denial of termination pay.

However, the board also noted that, when it came to constructive dismissal, the ESA required the worker to resign in response to the constructive dismissal “within a reasonable period.”

The worker claimed that he was constructively dismissed when the president of KX refused to acknowledge his claims and contacted him outside of business hours. However, the president’s refusal to pay the claims by 10 a.m. the next day without getting legal advice was justified, and sending an email about his next shift did not engage or breach a fundamental term of the employment contract – particularly in context of the meeting, said the board.

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Different standards

The employee’s actions were key to the fact that there was no constructive dismissal, says Horvat.

 “[The worker] claimed a constructive dismissal, [but] he hadn't left employment yet and it wasn't a timely reliance upon or assertion of the constructive dismissal within a reasonable period of time,” says Horvat. “An employee who claims to have a constructive dismissal [has] to act upon it within a reasonable period of time and essentially can't wait to see what happens in respect of the employment situation.”

The board found that, although the worker was entitled to public holiday pay, KX’s failure to pay it was not a breach of an essential term of the contract or an indication that it no longer intended to be bound by the contract. There was no indication that KX wouldn’t correct its non-compliance and management told the worker in the first meeting that they wanted to keep him, said the board.

The board added that, even if the failure to pay holiday pay could be characterized as a fundamental breach, it went on for more than 19 months without the worker asserting it as grounds for constructive dismissal. As a result, the board disagreed with the employment standards officer that the worker resigned as a result of constructive dismissal within a reasonable period.

The board agreed with KX that the worker’s unreasonable time constraint for KX to pay him the money owed was a defensive tactic in response to the investigation into time theft and the possibility of cause for dismissal.

A BC Supreme Court decision outlined the principles of constructive dismissal and the importance of both the employer’s and employee’s actions.

True motivation for resignation

When an employee asserts constructive dismissal, the onus is on them to demonstrate that the end of their employment was due to that constructive dismissal, which the worker wasn’t able to do, says Horvat.

“The board ultimately was not persuaded that the employee resigned as a result of what he asserted were the changes to his employment contract [and found] that there was an ulterior motive for his resignation,” he says.

Horvat adds that such circumstances can muddy an employee’s departure, because it comes down to determining the true motivation of the employee leaving.

“Is it because I changed the terms of your employment contract, or is it because you just don't like working here anymore?” says Horvat. “Or is it because you're afraid that you're about to get terminated and you want to jump as opposed to being pushed?”

The board determined that the worker resigned from his employment and was not entitled to termination pay. KX was ordered to pay only the outstanding public holiday and premium pay to the worker.

The circumstances are a reminder to employers that employment standards benefits are distinct from any action they might take relating to discipline or cause for dismissal, says Horvat.

“To some degree, I think [KX] got caught up with its investigation as to what it considered the misconduct of the employee within a fight over the allegations of the company’s failure to abide by the ESA requirements,” he says. “Those are two distinct issues and they can't conflate – you can't, for example, hold back holiday pay on the basis that you feel that the employee is engaged in time theft or another improper act, [because] they're entitled to the pay.

“Those have to be handled separately – the ESA precludes that in particular, where the two things are completely unrelated.”

See KX Health Inc. o/a KX Coffee Bar v. Panagiotis Peter Alexandropoulos, 2022 CanLII 106683.

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