Changes to remote work arrangement, bonus are constructive dismissal

Oral agreement 22 years earlier for working from home, quarterly bonuses based on revenue all conditions of employment: Court
By Jeffrey R. Smith
|Canadian Employment Law Today|Last Updated: 05/22/2018

An Ontario company constructively dismissed a long-time employee when it unilaterally changed her work-from-home arrangement — that the employee had been working under for 22 years — and reduced her last quarterly bonus to a fraction of her usual amount, the Ontario Superior Court of Justice has ruled.

Rosemary Hagholm, 60, began working for MicroAge, an information technology (IT) services company based in Toronto, in April 1982. She worked for MicroAge for 10 years until April 1992, when she quit because she had moved to Waterloo, Ont., about 110 km from MicroAge’s office. Hagholm felt the commute to the office would be too much so it was time to move on.

Two years later, a vice-president at MicroAge asked Hagholm if she would come back on a six-month contract. Hagholm agreed to the temporary position. However, at the end of the contract, the vice-president wanted to keep Hagholm on, so he offered her a full-time position. Hagholm accepted the offer on the condition that she could work from home three days a week and commute to the Toronto office twice a week. The agreement was confirmed in January 1995.

Hagholm worked for MicroAge under this arrangement for two decades, working from home for three days every week and coming into the office for two days. She became a manager, consulting services in 2000 and was responsible for staffing and budgeting. Her compensation included an annual bonus.

Employer sold to another company

In late 2015, MicroAge was sold to Coreio, another IT company that outsourced IT infrastructure and operations support. Hagholm continued to work from home three days a week until January 2017, when Coreio changed her position to that of resource manager in the advisory services division. The change was part of a restructuring of the business. According to Hagholm, her workload increased — she wasn’t allowed to use external recruitment agencies to fill job vacancies any longer, requiring her to do recruiting, screening and onboarding job candidates herself.

Coreio also gave Hagholm a performance improvement plan that indicated several complaints about her performance, including poor punctuation and grammar. The company had also concerns over what it felt was declining performance since the summer of 2016, including a failure to interview potential candidates for a client and not submitting an ad to a client for approval before posting it. She was expected to attend weekly meetings with her supervisor to discuss her progress and submit reports every week.

Hagholm was also told that her bonus for the fourth quarter of 2016 would be $6,739, a significant decrease from her usual amount, which was always close to or at the maximum entitlement of $18,000. MicroAge had told her bonuses were tied to company revenue, but Coreio management informed her they were partly discretionary, though they couldn’t tell her how it was calculated. The company also said it lost a major client in 2016 that would negatively impact earnings.

Finally, Coreio told Hagholm she could no longer work from home three days a week and she was expected to work at the Toronto-area office. The company didn’t offer her any compensation to offset her increased costs from driving more and paying tolls, plus two to three additional hours of commuting each day she had to come to the office, as it said the work-from-home arrangement wasn’t a term or condition of her employment and there was no written employment contract that entitled Hagholm to such an arrangement on a permanent basis.

On March 1, 2017, Hagholm resigned her position because of the new work schedule, new reporting requirements, and bonus reduction. She also filed a claim for constructive dismissal, though Coreio argued she had never indicated she had concerns about her performance improvement plan or working in the office five days a week.

The court found that when Hagholm was rehired to permanent employment in 1995, she negotiated an agreement in which working from home three days a week was a condition for accepting the job offer. Though there was no written contract, the oral agreement she had with MicroAge’s vice-president was real and continued for 22 years until January 2017. As a result, working from home 60 per cent of the time was an essential term of Hagholm’s employment agreement. When Coreio changed this term, it unilaterally breached the agreement and constructively dismissed Hagholm, said the court.

The court also noted that requiring Hagholm to commute 220 km round-trip for an additional three days a week would add significant costs in time, vehicle maintenance, fuel, and risk on the busy highways, and Coreio didn’t offer compensation for the added burden.

The court also found that Hagholm’s bonus was determined in a different way than before and it was arbitrarily set by Coreio to a significantly lower level — 37.44 per cent of the maximum amount, after she received 90 to 100 per cent her entire time with MicroAge and first year under Coreio. This was a contravention of Hagholm’s employment contract, since there was nothing indicating the bonus was tied to performance and the drop in earnings from the loss of a large client wouldn’t be felt until 2017 — the bonus was for revenues in 2016. The change in bonus was another unilateral change that constructively dismissed Hagholm, the court said.

Since Coreio constructively dismissed Hagholm by changing key elements of her employment contract — the work-from-home arrangement and the amount received for her quarterly bonus — the court determined Hagholm was entitled to damages in lieu of termination notice. Hagholm argued all 35 years of her service with MicroAge and Coreio should be factored in, but the court found no justification for including the 10 years before she quit in 1992. As a result, Hagholm had 22 years of service, entitling her to 22 months of service, less one-and-one-half months’ severance she had already received.

The court also determined Hagholm was entitled to the maximum 2016 fourth-quarter bonus, consistent with previous bonuses, ordering  Coreio to pay her $11,261 to bring her total bonus to the usual $18,000.

For more information see:

Hagholm v. Coreio Inc., 2017 CarswellOnt 21149 (Ont. S.C.J.).

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