The Latest from the Court of Appeal on Constructive Dismissal

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Morgan v. Vitran Express Canada Inc. provides a useful reminder as to the state of the law on constructive dismissal in Ontario.

Vitran employed Morgan as a dock supervisor for almost 25 years.  In that capacity, Morgan had supervised 22 men on a dock, sharing that responsibility with other dock supervisors. Vitran then changed his job to “freight analyst”, a position created specifically for him, which was described by the trial judge as a job that involved checking on two part-time workers.  She described the position as being of less importance and prestige with very little supervisory function and little opportunity to make decisions and exercise discretion.

As a result, the trial judge found that Vitran had altered the essential terms of Morgan’s employment in a substantial way.

Morgan left the company rather than accept the new position and sued for damages for constructive dismissal.

He was successful at trial.  The trial judge rejected Vitran’s argument at trial that a reasonable person in Morgan’s situation would have accepted the opportunity to continue working at Vitran as a freight analyst, thereby mitigating his damages.

Vitran appealed, arguing both that there had been no constructive dismissal and also that if there had been a constructive dismissal, Morgan had acted unreasonably in refusing to mitigate his damages by continuing to work at Vitran.

Both of these arguments were dismissed by the Court of Appeal.

On the constructive dismissal issue, the Court of Appeal referred to the state of the law as articulated by the Supreme Court of Canada earlier this year in Potter v. New Brunswick Legal Aid Services Commission and reiterated the two-part test for constructive dismissal.  Firstly, the court must determine whether or not there has been a substantial alteration of an essential term of the employment contract.  Secondly, the court must consider whether the conduct of the employer in making that alteration would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract.

In this case, the Court of Appeal agreed with the trial judge that Vitran had indeed substantially altered the essential terms of the employment contract and furthermore, that the circumstances viewed objectively would have made it clear to any reasonable person that Vitran no longer intended to be bound by the terms of the employment agreement.

In essence, a demotion will constitute a substantial change to the essential terms of an employment contract which will warrant the finding of constructive dismissal if it can be reasonably said that the employer simply does not want the employee around anymore.  The court agreed that this was the case with Morgan.

On the mitigation point, the trial judge had dismissed Vitran’s argument because she found that Morgan had been subject to an unfriendly work environment and that his personal relationships with several of his superiors were acrimonious.  As a result, according to the trial judge, Morgan was justified in walking out the door and starting this lawsuit.

There is well established Supreme Court of Canada case law on the circumstances in which a dismissed employee must mitigate damages by returning to work for the same employer.  It is clear that there is no such obligation where the work environment is unfriendly, where the new position is of lesser importance than the previous position and where the employee will suffer a loss of dignity in the eyes of those who had previously worked under his supervision.  That was all true in this case.

Furthermore, as the freight analyst position had not been posted, the court agreed that other employees would have known that it was a position created especially for him because of perceived ineptitude.  The court also agreed that his personal relationships with his supervisors were acrimonious in the sense that no matter what he did, they continued to criticize him.

As a result, Morgan was justified in leaving rather than accepting the demotion.

Thoughts and Observations of a Toronto Mediator About Culture and Conflict

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Based on my research and my experience, it seems to me that cultural influences can bear significantly on the topic of conflict resolution.  I am not sure that mediators are typically sensitive to this point.

Certainly, generalizations concerning the manner in which an individual is likely to behave based on any particular culture with which that individual is affiliated will be problematic.  That would be true even if, for example, a mediator was completely familiar with a particular party‘s predominant culture.

Firstly, even members of a clearly defined culture may not behave in a manner that is consist with the type of behaviour that might ordinarily be expected from members of that culture.

Secondly, any attempt by a mediator to analyze how a party is likely to view a conflict or behave in the context of an effort at conflict resolution will itself be coloured by mediator’s own cultural affiliations.  That will be true whether or not the mediator identifies himself as a member of the same cultural group as the party.

Nevertheless, it would be an error for a mediator to ignore cultural influences on parties.  While there will always be a risk of stereotyping a party, there is ample evidence in the literature of relatively common traits that can be identified in connection with various cultural groups.  In my view, it would be a mistake to ignore the evidence that exists.

To illustrate the point using a fairly superficial example, and based on my own experience, we can look briefly at the way in which people approach bargaining.  Bargaining, of course, is a fundamental part of conflict resolution – certainly in the vast majority of mandatory mediations in our jurisdiction.  People from different cultural backgrounds will exhibit a different level of comfort with the bargaining process itself.  In Western culture, for example, in my experience, parties tend to be highly bottom-line oriented. They may find the bargaining process itself to be somewhat frustrating and see it both as a necessary evil and is something to be expedited to the extent possible. They are not particularly used to it and appear to have no desire to become used to it. After all, a consumer in a Western country will go into a store to buy an item off the shelf and, if the price is acceptable, pay the price at the checkout counter without further ado. Typically, the consumer will have no interest in bargaining with respect to that product.

However, in other cultures, the bargaining process is seen completely differently.  In the Middle East, for example, it is perfectly understood that in many marketplaces, no consumer buys a product at the price initially articulated by the vendor.  It is understood that the quoted price is nothing more than an invitation to negotiate.  People from such cultures, therefore, experience bargaining on a daily basis.  They appear to me to be entirely comfortable with the bargaining process and, whether or not they enjoy it, they accept it as a necessary and routine part of life.  While the bottom line remains critical, they may well exhibit a higher level of patience and tenacity than their Western counterparts in terms of getting there.

In my view, one of the factors most fundamental to the question of conflict resolution is that described in the literature as high and low context.  This is the distinction between cultures which emphasize protocol and promote subtle and indirect communication as opposed to direct “get to the point” communication.  This is a key factor simply because it impacts directly on communications between the parties and between each party and the mediator. In Asian cultures, for example, the research indicates that indirect communications are favoured.  Messages are embedded in the implicitly shared and cultural knowledge of members of the group.  Non-verbal communications are as important if not more important than verbal communications.  In the literature, Asian cultures are considered high context.

In a low context culture such as that of the United States, communications and meanings are more literal and direct. Additionally, members of Western cultures seem to be better able to separate the people involved in disputes from the conflict issue itself.

A high context approach to conflict is oriented towards cooperation and problem solving.  A low context approach is more competitive and self-serving. The relevance of these distinctions for the negotiating process involved in a mediation is obvious.  It follows that the greater the sensitivity on the part of each party to the approach dictated, at least as a generalization, by the opposite party’s cultural membership, and the greater each party’s sensitivity to the cultural norms influencing the opposing party, the greater the chances of a successful resolution to the conflict.

The goal for the mediator and any legal counsel genuinely interested in resolution should be to address these cultural influences with the parties so as to raise each party’s consciousness and expedite each party’s progress along a continuum of what has been referred to as stages of the acceptance of cultural differences.  The literature suggests that four such stages exist:

  1. a disinclination to acknowledge the existence of other or competing groups;
  2. regarding the other group as inferior in some manner;
  3. trivializing the differences between the party’s own group and the opposing party’s group;
  4. shifting from a state of being group-centered to a state of being group-relative, in which a party sees differences not as right or wrong, or good or bad, and ceases to see his or her own group as the reality against which all else must be measured and judged. At this stage, differences are accepted and at least understood if not valued.

In my view, this is the essence of what a mediator must strive for in a mediation involving parties of markedly different cultural backgrounds:  sensitivity, understanding and the willingness to move parties along this spectrum to a point in which the opposing party is no longer demonized or disregarded, and the possibility of an empathetic response begins to emerge.

Defamation Actions: A Bad Investment

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As Mr. Justice Graeme Mew of the Superior Court of Justice pointed out in the recent case of Bernstein v. Poon, “defamation litigation is a high-stakes business”.  The Bernstein case was truly a perfect example of defamation litigation being not only a high-stakes business, but also a very uneconomical one.

In this case, two prominent Toronto diet doctors got into the ring with each other in a big way.

In 2008, Dr. Bernstein sued Dr. Poon for an injunction to stop the publication of the book “Dr. Poon’s Metabolic Diet”, an injunction requiring the retraction of allegedly defamatory statements posted on Dr. Poon’s diet website, $5 million in damages and $5 million in punitive damages.

By the time of the 7½ day trial, about six years later, Dr. Bernstein had restricted his claims to damages only.

After the dust had settled, Dr. Poon was ordered to pay Dr. Bernstein the grand total of $10,000 in general damages for defamation.

As the judge indicated, “the amounts spent in this litigation are truly breathtaking”.  The plaintiffs incurred legal fees of almost $550,000. The Defendant spent about $250,000.

The judge pointed out that the parties in this case were able to afford to go to trial. But the cost of doing so was exorbitant. In fact, as the judge pointed out, in defamation cases, the costs incurred by the parties will often exceed the monetary recovery. A study of 47 libel and privacy cases in the United Kingdom published in 2009 found that the costs to plaintiffs averaged 184 percent of damages and the defendants’ costs averaged 124 percent of damages.

It appears that the fight between these parties on the question of costs was as intense as the fight over the alleged defamation.  Although the judge concluded at the trial that the case was more about ego than actual harm, Dr. Bernstein maintained that the action was a genuine attempt to end the tarnishing of his reputation, that it should not have been necessary for him to go all the way to trial to stop the behaviour complained of, and that he should be awarded 100 percent of his actual costs. This was particularly so, according to him, because even after the action started, Dr. Poon proceeded to publish yet another edition of his book and then posted on his website a Chinese language television broadcast showing Dr. Poon making defamatory remarks about Dr. Bernstein.

On the other hand, Dr. Poon sought an award of costs representing a portion of his actual legal expenses, arguing that given the paltry amount ultimately awarded to Dr. Bernstein, the entire matter had been dealt with in the wrong court. According to Dr. Poon, this action should have been brought in the Small Claims Court which has a jurisdictional limit of $25,000.  Furthermore, Dr. Bernstein’s recovery at trial was less than 0.5 percent of the total amount claimed and the claims for injunctive relief were not pursued.

At trial, the judge found that the case was “more about turf warfare in the competitive world of diet medicine than about reputation”.  In terms of Dr. Bernstein’s choice of court, the judge felt that without question, Dr. Bernstein wanted the litigation to have the maximum possible impact on Dr. Poon and bringing the action in Small Claims Court would not have met that objective. As he put it, Dr. Bernstein tried to use his financial muscle to wrestle with a competitor. The competitor, however, stubbornly refused to back down and went on the attack in terms of the way he carried on his defence in the action.

At the end of the day, Dr. Poon defeated most of Dr. Bernstein’s claims. However, some of Dr. Poon’s comments on which the liability for $10,000 was grounded were made after the litigation began. Accordingly, rather than making an offer containing even a modest monetary element, Dr. Poon “effectively fanned the flames”.

In the result, the court determined that as the overall outcome was close to being a draw, and as the exercise had cost both doctors a lot of money and used a scarce public resource in doing so, each party should bear his own costs.  Both doctors were substantially out of pocket, Dr. Bernstein even more so than Dr. Poon. One can only shake one’s head and wonder whether or not, in retrospect, either one wishes he had done things differently.

When Can A Former Employee Compete?

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In the recent case of Optilinx Systems Inc. v. Fiberco Solutions Inc., the Superior Court of Ontario provided a useful reminder as to the circumstances in which a former employee is entitled to compete with his former employer.

In this case, Mr. Foresta had been employed by Optilinx as the project manager of its fiber optic division. He was not an owner, officer or director of the company and he was not bound by any non-competition or non-solicitation agreement. He was not involved in management at a senior level. However, he was regarded by the company as a key employee and, in fact, he was its highest paid staff employee when he resigned in August 2014 after 12 years of employment.

The company’s customers were major Canadian telecommunications companies such as Bell Canada and Rogers. It did not have exclusive contracts with its customers and it competed for their business against other fiber optic cable companies. Mr. Foresta was the company’s main but not its exclusive salesperson with its customers, reporting directly to the company’s owner.

In the months before his departure, he indicated to other employees in confidence that he was planning to leave and start his own business that would compete with the company. He suggested to them that they would be welcome to join him in the new business and that they should seriously consider doing so because his departure would imperil the company’s business success.

In the summer of 2014, he incorporated his own company and obtained $300,000 in financing. He then resigned. Shortly afterwards, four other company employees resigned to join him.

After his departure, he re-entered the fiber optic cable business through his new company.

Optilinx’s case against Mr. Foresta was that he was no ordinary employee, but rather a key employee owing fiduciary duties to his employer. The company sought an injunction to stop Mr. Foresta from doing business with several of the company’s largest customers.

To the court, however, while Mr. Foresta may have been a very important and productive employee, and even the lynchpin to the company’s success, he was not an owner, director, shareholder or a member of management. His importance as an employee did not mean that he was a fiduciary. In this case, the company was unable to establish a sufficiently strong case that Mr. Foresta occupied the position of a fiduciary.

As the court noted, there is nothing to prevent an ordinary employee from terminating his employment, at which point that employee is free to compete with his former employer unless there exists a contract preventing him to do so. On the other hand, a fiduciary occupies a position of loyalty and trust and is not permitted to allow his own self-interest to conflict with those duties. However, even a fiduciary who terminates his employment is entitled to accept business from former clients, although a fiduciary may not directly solicit business from former clients. In this case, even if Mr. Foresta did have fiduciary responsibilities, there was no evidence that he had actively solicited business from the company’s customers.

The situation would have been different had there been evidence that Mr. Foresta had taken confidential information such as customer lists, or stolen trade secrets, from his employer. That type of conduct is unlawful and the court will step in, in those circumstances. However, as this case reminds us, where the departing employee is not a fiduciary, the rules are very different.

Wrongful Dismissal and Mitigation: Can a Fired Worker Start His Own Business?

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The recent case of Leeming v. IBM Canada Ltd. includes a useful review of the law relating to mitigation of damages in the context of wrongful dismissal. It provides some particularly useful insights into the issue that arises when the fired employee, unable to find comparable employment, starts his or her own business.

In this case, the plaintiff was wrongfully dismissed from IBM from her position as a Senior Managing Consultant. In that position, she had been responsible for various project management duties including project scheduling, tracking budgets and interfacing with clients to ensure deliverables were met.

After eight years of employment at IBM, IBM decided to eliminate her position and terminated her employment. At that time, she was 60 years old.

In the following four months, she applied for 20 positions in various industries and job types. She searched job search websites and spoke to recruiters. She tried to find jobs through outplacement counselling, by networking with friends and business contacts and through any leads that those people provided to her. She created a LinkedIn profile through which she was approached about potential job opportunities.

She had two job interviews but she received no offers.

When her efforts to find a new position failed, she decided to start her own business specializing in digital marketing solutions for small and medium-sized companies. Marketing was not an area in which she had either experience or training. She obtained a franchise with a franchisor in that industry but by the time her lawsuit reached trial over one year later, her business had not yet become profitable.

IBM took the position at trial that she had failed to mitigate and was therefore disentitled to damages for wrongful dismissal.

The court was satisfied that the plaintiff did not fail to mitigate. The judge found that she had made reasonable efforts to find a new job and ultimately that her decision to become her own employer by training herself for a new career as a franchisee, was reasonable. The judge pointed out that it was easy enough for IBM to say that she should have stayed in the labour market longer but in the judge’s opinion, she tested the market long enough to make a reasonable decision to retrain for a new career.

The judge referred to a previous Court of Appeal decision in which case the court had said that the fact that the early years of a worker’s self-employment did not live up to his monetary expectations does not mean that this was an unreasonable attempt to mitigate. A fired worker is entitled to consider his own long term interests when seeking another way to make a living. His attempts at mitigation cannot be considered unreasonable just because he fails to focus exclusively on his short term obligation to mitigate damages for the sake of his former employer.

The idea of starting one’s own business always raises difficult questions in the context of a former employer’s mitigation arguments. In this case, the plaintiff spent what the court considered to be a reasonable amount of time and made reasonable efforts without success. Presumably, her age had something to do with her inability to find another job. Nevertheless, the question of when it is safe for a fired worker to give up the job search and retrain for a new career will always be a tricky one, since the odds that the new career will pay dividends during the notice period are usually quite low.

Some Thoughts and Observations By a Toronto Mediator – Part 2

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In this post, once again, I thought I would provide some additional observations on an aspect of the mediation process.  This post will comment on the relationship between neuroscience and conflict.

There are a number of studies in the booming area of neuroscience that focus on how the human brain relates to conflict and specifically on how male and female brains differ in that connection.  For example, psychologically, females are usually thought to be superior in inter-personal sensitivity than males.  That is a factor that is highly relevant to the issue of empathy, a critical element in the mediation context.

The entire issue of neuroscience is attractive because it deals with physical phenomena.  It produces pictures of brain activity which may suggest universal behavioural features.  In turn, this might enable mediators, counsel and parties to better understand decision-making processes and predict responses which people of a given gender, for example, may exhibit.

In my view, this type of study is particularly valuable to pick up where a mere economic analysis leaves off.  Economics gives us expected value calculations and litigation risk analysis.  It is based on the theory that decisions are made by rational people, who will act in a rational and logical manner in all circumstances.

Anyone with any life experience at all knows that this is simply not the case.  Firstly, people do not act on a rational basis in every case and every time.  Secondly, even where a party strives for rationality, what is rational behaviour to one person will not be rational to another.  Put another way, many if not most decisions are capable of more than one approach which may appear to be rational to some but not to others.  Variables in this connection likely include both culture and gender.  They will also include neuroscientific considerations.

For example, according to neuroscience, people speak in a universal emotional language.  The entire theory behind parties to a mediation gathering in a room and delivering opening statements is probably based on, or at least supported by, the theory of mirror neurons.  The assumption is that people are hardwired for empathy which, as we now know, probably varies with gender. Taken at face value, this may suggest that as a practical matter, the extent to which mediators should permit parties to engage in face-to-face discussion may be influenced by whether or not one or both is male or female.

Unfortunately, the literature is not at all consistent in this area.  Perhaps this is not surprising given the relative infancy of this area of study.  For example, one author suggests that the ability to interpret facial expressions is unconnected with culture.  On the other hand, there is evidence that suggests that the manner in which people perceive the facial expressions of others will indeed differ across cultures.

There is even controversy in the literature as to what mediators ought to do with this type of information.  There are those who consider face-to-face discussion to be important to any party interested in convincing the opposing party of his or her sincerity.  On the other hand, others consider face-to-face discussion to be highly problematic, at least in instances in which there is a perceived power imbalance between the parties.

While these nuances may be controversial, however, there appears to be solid evidence from neuroscientific studies as to the manner in which the brain reacts to emotionally charged issues such as those typical of conflict and efforts to resolve conflict.

For example, while it is normal and natural for a party to a legal dispute to feel angry, it would appear clear that such feelings represent an obstacle to settlement at least in the sense that angry people are less likely to make decisions in their own best interests.

Feelings of anger generally begin with a triggering event which causes a party to assess the relevance of a given situation to his own aspirations and the likelihood of achieving his own goals.  The party will then focus on who is to blame for the problem and assess whether or not the person will be able to cope with the situation as well as the likelihood that the situation will improve.  In the meantime, however, the party dealing with feelings of anger will be subject to an excessive amount of adrenaline produced in the brain.  This hormone is produced by the adrenal glands when the body is in a state of high anxiety, fear or excitement.  While it enhances alertness, and while neuroscience teaches us that emotion of this nature is an integral part of reason and the decision-making process, anger will affect cognitive processing and interfere with the ability to solve complex problems.  It has even been suggested that regardless of personal levels of intelligence, during anger arousal, people perform generally as if they have a learning disability.  Even subtle forms of anger impair problem-solving and general performance.  In addition to increasing error rates, anger narrows mental focus, obscuring alternative perspectives.

The angry person has one “right way” of doing things, which, if selected in anger, is seldom the best way.

Neuroscience tells us that this limitation to a person’s access to rational cognitive functions will arise whenever a person is under stress or threat or feels shame.  On the other hand, when the body senses safety, the nervous system becomes receptive to new information.  This suggests that there is a need for mediators, counsel and parties to be aware of physical dynamics in order to reduce a party’s perception of threat and thereby increase the chances of a successful resolution.

When Will A Suspension From Employment Amount To A Constructive Dismissal?

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In the recent case of Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada provided some interesting clarifications on the law of constructive dismissal.

In this case, Potter was appointed by the defendant as its executive director for a seven-year term.

During the first half of the term the relationship between the parties deteriorated and they began to negotiate a buy-out. Potter became ill before the negotiation was completed. Just before he returned to work, the Commission suspended him indefinitely with pay and delegated his powers and duties to another person. At the same time, it wrote to the Minister of Justice recommending that his employment be terminated for cause. It refused to give Potter any clear reason for the suspension.

Potter claimed that he had been constructively dismissed and sued. He lost at trial and at the Court of Appeal.

The Supreme Court of Canada had a completely different view and allowed the appeal.

The Supreme Court of Canada pointed out that in order to find that a constructive dismissal has taken place, the court must first identify an express or implied term of the contract that has been breached. The court will then determine whether or not that breach was sufficiently serious to constitute a constructive dismissal. The point of the exercise is to determine whether the employer’s conduct shows that it does not intend to be bound by the employment contract any longer.

The primary burden is on the employee to establish constructive dismissal but where an administrative suspension is at issue, as in this case, the burden will shift to the employer to show that the suspension was reasonable or justified. If the employer cannot do so, a breach will have been established and the employee will then have to satisfy the court that the breach substantially altered an essential term of the contract.

In this case, the contract had no express provision for a suspension. The Commission did have an implied authority to relieve Potter from his duties provided that it could show a business justification for doing so. The Commission could not show a business justification, for at least two reasons. Firstly, Potter was never given any reason for his suspension. To the court, an administrative suspension cannot be justified without basic level of communication with the employee. Secondly, the Commission’s claim that the suspension was simply to facilitate a buy-out was undercut by its own conduct, namely its letter to the Minister recommending a termination, the fact that Potter was replaced during a suspension period, and the fact that the suspension was indefinite.

As a result, the unilateral suspension constituted a breach and it was reasonable for Potter to perceive the breach as a substantial change to his contract. There had been a constructive dismissal and Potter was entitled to damages.

This case is a useful reminder to employers who are under the impression that suspensions are a viable alternative to outright terminations. If a suspension is merely a preliminary step towards a termination, which an employer chooses to take in the hope that the employee will simply get the message that is intended to be sent and resign, the employer is taking a risk that might not be worthwhile.