Managing change in the workplace: Constructive dismissal and the duty to mitigate

Reduction in income doesn't automatically remove duty to mitigate: N.S. Court of Appeal
By G. Grant Machum
||Last Updated: 05/24/2019
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Lastweek’s Nova Scotia Court of Appeal’s decision in Halifax Herald Limited v. Clarke, is good news for employers. The court overturned the trial judge’sdeterminations that an employee had been constructively dismissed after he wastransferred to a new sales position and had not failed to mitigate his damagesby declining to stay at work in the new position.

The court held that the trial judge had committed three reversible errors by:(1) excluding relevant evidence of actual sales results; (2) misapplying thelegal test for constructive dismissal; and (3) misapplying the legal test formitigation. As a result, the court not only overturned the trial decision butdismissed the action outright. The former employee must now pay the Heraldapproximately $130,000, which includes trial and appeal costs.

This decision is good news for employers faced with restructuring theirbusiness to manage industry change and other developments. It brings improvedclarity to the law of constructive dismissal and the duty to mitigate. Theanalysis must be objective and consider the evidence from the employer withoutunduly focusing on the employee’s subjective views. Moreover, a reduction inincome — whether actual or anticipated — does not automatically remove the dutyto mitigate by continuing in the position.

Halifax Herald Limited is amedia company and, facing the decline in advertising and circulation revenuesaffecting the traditional print media industry, had been diversifying its linesof business into new areas.

The former employee was a long-service salesperson with the Herald who for manyyears had sold advertising space in newspapers. He was transferred by theHerald into a new sales position that would instead focus on two new lines ofbusiness targeted for growth. While the new position had the same base salaryand benefits, compensation in both positions was primarily based oncommissions.

The parties had different outlooks on the sales prospects for the new position,upon which the employee’s variable income would be based. The Herald wasoptimistic and the employee was pessimistic. The Herald offered a period of guaranteedincome, which was increased following some discussions regarding the employee’sconcerns. Rather than wait and see or stay under protest in order to mitigatehis losses, the employee quit and sued for constructive dismissal, saying thathis compensation had been unilaterally reduced.

Exclusion of the actual sales results

At trial, the Herald tried to lead evidence of actual sales figures from afterthe employee decided to leave to support its position that his income would nothave gone down. The trial judge refused to allow the Herald to cross-examinethe former employee on, or lead evidence through its own witnesses of, theactual sales on the basis that they were not relevant because they arose afterthe employee had quit and sued.

The Court of Appeal found that excluding this evidence was an error and thatthe actual sales figures were relevant. Although they were “after the fact”evidence, they were relevant to both constructive dismissal and mitigation.While the evidence was not known at the time that the former employee decidedto leave and would not have been determinative of the issue, it was relevant toassessing the reasonableness of the former employee’s subjective beliefs thathis income would be reduced in the new position, despite the Herald’s ownexpectations to the contrary. The evidence was also relevant to mitigationsince, in her decision, the trial judge had made positive findings of fact thatthe former employee’s income would have declined had he remained.

The Court of Appeal held that this error alone would have been sufficient toorder a new trial, but given its determinations on the other two issues, thiswasn’t necessary.

Constructivedismissal: when is a unilateral change deemed a dismissal?

On the constructive dismissal issue, the court determined that the trial judgehad failed to apply the correct legal standard for constructive dismissal tothe uncontested facts established at trial. The trial judge found theunilateral change to the employee’s position constituted constructive dismissalbecause it affected his compensation and changed his duties andresponsibilities. However, constructive dismissal requires not only aunilateral change, but an assessment of whether that change is so serious orsubstantial so as to demonstrate “an intention not to be bound by theemployment contract.”

The court highlighted the uncontested evidence led by the Herald at trial andnoted that the trial judge had not referred to any of it in her analysis butinstead focused solely on the former employee’s subjective views. Viewedobjectively, the Court of Appeal decided that the Herald had not shown anintention to no longer be bound by the employment contract and therefore hadnot constructively dismissed the former employee.

Mitigation:when can an employee quit and sue?

The Court of Appeal then considered theHerald’s third ground of appeal, which was that even if the former employee had beenconstructively dismissed, he had a duty to mitigate his damages by continuingin the new position (commonly known as “Evansmitigation,” following the Supreme Court of Canada’s decision in Evans v. Teamsters Local Union No. 31).

Here, the court found that the trial judge had failed to apply the correctlegal standard and ignored plainly relevant evidence. The critical focus of theEvans mitigation analysis is that an employee should not be obligated tomitigate by working in “an atmosphere of hostility, embarrassment orhumiliation.” The Herald’s evidence at trial was that it wanted to maintain theemployment relationship with the employee, who was valued and well-liked. Thetrial judge expressly recognized the absence of acrimony in the workplace, butnonetheless focused solely on income reduction in finding that the former employeedid not have a duty to stay in the role to mitigate his losses.

For more information see:

• Halifax Herald Limited v. Clarke, 2019 NSCA 31 (N.S. C.A.).

• Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (S.C.C.).

G. Grant Machum is a partner and former Labour and Employment practice group leader with Stewart McKelvey in Halifax. He can be reached at (902) 420-3330 or The Halifax Herald was represented at  trial and on appeal by Sean Kelly and Killian McParland of Stewart McKelvey’s Labour and Employment practice group.

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