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Revocation of a job offer likely to be treated as repudiation of employment agreement leading to damages

Giving and taking away

Ford Canada found it had more headaches than just those caused by the economic downturn when it was forced to revoke job offers it made to hundreds of people in 2008. A class action lawsuit against the automaker by the would-be autoworkers claimed once it made the offers, they made arrangements such as quitting other jobs under the assumption they were now employees and pulling back the offers was a violation of a contract tantamount to wrongful dismissal.

The case raises questions of when an applicant becomes an employee, the significance of an offer of employment and what happens if the individual hasn’t actually performed any work for the employer before the relationship is terminated. Employment lawyer Thomas Stefanik wades through the issues of employment contracts, reasonable notice and wrongful dismissal damages as they relate to these circumstances.

An Ontario Court has recently certified a class action lawsuit against Ford Motor Company which alleges Ford reneged on job offers at its Oakville, Ont., plant it made and then withdrew. The class action alleges during the week of July 14, 2008, Ford offered jobs to hundreds of individuals as assemblers that would begin on July 28.

However, a week later, Ford said it was postponing a third shift in Oakville because of a sudden decline in demand for its products. During the week of Aug. 8, 2008, Ford advised the individuals the shift would not be implemented at all.

Many of the individuals affected have said they quit or gave notice to their previous employers of their intention to join Ford. As a result, the individuals allege “anticipatory breach of contract, wrongful dismissal and/or a repudiation of the employment contract” stemming from Ford’s failure to employ them.

Ford took the position that any employment agreement in place was “frustrated” due to factors beyond its control and any claim the individuals might have must be submitted through the grievance provisions of the collective agreement. However, the Canadian Auto Workers said it could not file a grievance as the individuals were not actual employees and therefore not yet union members.

Putting aside the issue of whether the individuals can file a grievance, employers might well question what exactly courts can do about the “repudiation” of an employment contract. In other words, is an employer worse off if it advises an employee it cannot honour an employment offer than if it simply employed the employee for a short period of time and then terminated the employment?

The general rule with respect to terminating a non-union employee, subject to any employment agreement in existence, is governed by the long-standing principle that an employee is entitled to reasonable notice or pay in lieu of notice, subject to an employee’s duty to mitigate the damages from the termination. But are there different principles or damages on a different basis if the employee accepted an offer of employment, but never actually started because the employer decided it did not require her services? This is what is known as “repudiation” of the employment agreement, in that the employer indicates it does not wish to be bound, for whatever reasons, by the arrangement that was previously made.

Repudiation of employment agreement can lead to wrongful dismissal damages

In cases of constructive dismissal, courts commonly talk about the repudiation of the employment agreement if an employer makes changes to an employee’s job which indicate the employer no longer wishes to be bound by the original arrangement. It should not be surprising that courts have little difficulty in treating the failure of an employer to allow an employee to start her job as a repudiation of the employment agreement.

There are a multitude of cases in Canada where this has occurred. The reasons are varied, but generally the employer’s position is that unexpected events or circumstances have arisen which make the employment of the individual problematic. In almost all these cases, the employer’s defence is that the anticipated job functions are no longer necessary and cannot be implemented. Courts have universally rejected this as a basis on which to deny the employee the ability to claim damages for the repudiation of the employment agreement.

The result is both good and bad news for employers. The good news is the repudiation of the employment agreement will generally not lead to damages being assessed on a substantially different basis than in a normal wrongful dismissal action. Courts consider the employee to have been hired for a job, but never started, and assess what is reasonable notice based on the normal factors. The bad news is that in many of these cases, the employee will have resigned from a previous employer, may have made substantial changes to her personal circumstances — such as having sold a house and moved — or rearranged other aspects of her life for which she is now disadvantaged. Courts look to all of these circumstances in assessing reasonable notice.

An employer can expect to be exposed to at least the amount of reasonable notice it would have been required to give had it actually employed the employee, albeit for a very short time. It might also be exposed to out-of-pocket expenses the individual may have incurred by accepting the job offer. In rare cases, an employer might be exposed to punitive or Wallace damages if the court concludes it acted in bad faith in making the offer and then withdrawing it.

Tips for employers

When intervening events between an offer of employment and the date of commencement of employment make it problematic to allow an individual to start her employment, employers should consider the following:

In offering the job, it is almost always preferable to make the offer via a written employment contract. This is particularly important in the case of senior managers or executives. If an employer can demonstrate that, even if it had employed the individual rather than repudiating the contract before she started working, the individual would have been subject to an agreed upon notice period, a court might be inclined to limit the damages to whatever the agreed upon notice period would likely have been.

Without any admission of liability, an employer may be well advised to assist the employee immediately with respect to finding alternative employment as quickly as possible. Notwithstanding that the employment agreement has been repudiated, an employee or potential employee is still under an obligation to mitigate her damages. This would include immediately contacting her former employer to see if she can return to that employment if the position is still open. An employer may also wish to offer job relocation assistance as this expenditure may well amount to significant cost savings should litigation be commenced.

Properly structuring a response by an employer in the case of a repudiation of a contract requires precise and expeditious action by the employer, so that the employer’s legal position can best be protected and advanced. A failure by an employer to properly respond can lead to significant damages being awarded to the employee as well as potentially significant legal costs being incurred by the employer.

Thomas A. Stefanik is head of the Labour Relations and Employment Law Group at Torkin Manes LLP in Toronto. He can be reached at (416) 777-5430 or [email protected]

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The Ford flip-flop

In April 2008, Ford Canada was planning to add a third shift at its assembly plant in Oakville, Ont. It advertised the availability of hundreds of assembler jobs starting on July 28 and hired about 350 people. However, a week before the shift’s planned start, a downturn in sales caused the company to announce it would be postponing the new shift’s start date. In early August, things weren’t getting any better so Ford cancelled the shift altogether and informed its prospective new employees there would be no assembler jobs after all.

A class action lawsuit against Ford filed by the out-of-luck job seekers was recently certified by an Ontario court and will go to trial, unless a settlement is reached. Though the people hadn’t technically started their jobs, many claimed they had already quit or given notice at their previous employers and couldn’t go back. Many others had moved or changed other arrangements in their life based on the expectation they would be working for Ford. This, they claimed, put Ford on the hook for wrongful dismissal as if they had already been working at the automaker.

Brenda Austen of St. Catherines, Ont., was one of those offered an assembler job and is part of the class action. She said she quit her previous job to take the position at Ford and tried unsuccessfully to get it back after Ford revoked its offer.

“We are jobless with no benefits and no money, and we still have bills and rent and kids and food like everybody else,” Austen said at a press conference.

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