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Wrongful Dismissal: Brake v. PJ-M2R Restaurant Inc.

Wrongful Dismissal: Brake v. PJ-M2R Restaurant Inc.

**Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402

Employment — Wrongful dismissal — Constructive dismissal — Employer telling restaurant manager that she could accept demotion to position as first assistant with meaningfully inferior benefits or be fired — Employee constructively dismissed — Employee not obliged to accept humiliating demotion in order to mitigate her damages.

Employment — Wrongful dismissal — Damages — Mitigation — Trial judge awarding constructively dismissed employee damages based on notice period of 20 years (inclusive of statutory entitlement to termination and severance pay) — Employment income earned by employee during statutory entitlement period not subject to deduction from damaages as mitigation income — Income which employee earned during notice period from part-time job which she had held while working full- time for employer not deductible from damages as mitigation income.

Employment — Wrongful dismissal — Damages — Notice — Employer signing letter when employee started work confirming that employee was credited with seven years of service for her 13 years with franchise in another location — Employee constructively dismissed after further 13 years’ employment — Trial judge not erring in finding that employee had equivalent of 20 years’ service with employer and in awarding damages based on notice period of 20 months (inclusive of statutory entitlement to termination and severance pay).

The defendant operated a McDonald’s franchise. The plaintiff was employed by the defendant for 13 years. Before that, she had worked for 13 years at McDonald’s restaurants in Newfoundland. When she started working for the defendant in 1999, the defendant provided her with a credit letter which stated that she was being credited with seven years of full-time service for her service in Newfoundland. Until 2010, the plaintiff received ratings of “excellent” or better in all of her annual evaluations. In 2011, she received a negative performance review and was transferred to a McDonald’s in a Wal-Mart, a location which was struggling. Despite her hard work there, she was placed in McDonald’s progressive discipline program. At the end of the discipline period, the defendant informed the plaintiff that she could either accept a demotion to the position of first assistant or be fired. Her salary would not be reduced, but her benefits would be meaningfully inferior. She found the proposed demotion humiliating because she would be reporting to people whom she had trained and supervised. She did not accept the demotion. Instead, she brought an action for damages for wrongful dismissal. The trial judge found that the plaintiff had been set up to fail from the beginning of the progressive discipline program, that the program was arbitrary and unfair, that the plaintiff had not been given a clear and responsible opportunity to correct the issues that the defendant had with her performance, and that, taken at their highest and in aggregate, the complaints about her performance did not amount to cause for dismissal. He found that the plaintiff was constructively dismissed when she was given the choice between accepting the demotion and being fired. He awarded her damages based on a notice period of 20 years, inclusive of her statutory entitlement to termination and severance pay. The defendant appealed.
Held, the appeal should be dismissed.

Per Gillese J.A. (Pepall J.A. concurring): The trial judge did not err in finding that the plaintiff was constructively dismissed. The demotion was unilateral — the plaintiff did not consent to it and there was no suggestion that either an express or implied term in the employment contract authorized the change in position. The demotion would have been detrimental to the plaintiff if for no other reason than that her benefits would have been meaningfully inferior. A reasonable person in the plaintiff’s situation would have felt that the demotion amounted to a change to the essential terms of her employment contract.

The plaintiff was not required to mitigate her damages by working in an atmosphere of hostility, embarrassment or humiliation.

The trial judge did not err in awarding the plaintiff damages based on a notice period of 20 months, inclusive of her entitlement to statutory termination and severance pay. He was entitled to take the credit letter into account in finding that the plaintiff had the equivalent of 20 years of service with the defendant.

During the notice period, the plaintiff earned income from employment with Sobey’s, Tim Horton’s and Home Depot. She also received employment income benefits. She had worked part-time for Sobey’s, to the defendant’s knowledge, while working full-time for the defendant. The trial judge was entitled to find that the plaintiff made reasonable efforts to mitigate her damages despite not applying for other restaurant manager positions. The EI benefits received by the plaintiff during the notice period were not received in mitigation of loss and were not deductible from damages for wrongful dismissal. The employment income earned by the plaintiff during the statutory entitlement period was also not deductible from damages. The plaintiff was entitled to receive her statutory entitlements even if she secured a new full-time job the day after she was terminated. Therefore, the Tim Horton’s income (which was earned during the plain- tiff’s statutory entitlement period) was not subject to deduction as “mitigation income”. The income earned by the plaintiff from Sobey’s during the common law notice period was not deductible from damages. For income earned by a plaintiff after a breach of contract to be deductible from damages, the performance in mitigation and that provided or contemplated under the original contract must be mutually exclusive. That is not the case where a plaintiff worked full-time for one employer but her employment contract permitted simultaneous employment with another employer. The plaintiff’s work for the defendant and her second job with Sobey’s while working for the defendant were not mutually exclusive. Finally, the evidence regarding the plaintiff’s Home Depot income was unclear. In those circumstances, the modest sum of $600 that the plaintiff earned from Home Depot should not be deducted from damages.

Per K.N. Feldman J.A. (concurring): Accepting the reasons and result of Gillese J.A., the trial judge was entitled to find that the position the plaintiff held with Home Depot was so substantially inferior to the management position she held with the defendant that the former did not diminish the loss of the latter. The trial judge did not err in declining to deduct the Home Depot income that the plaintiff earned during the common law notice period from her damages for wrongful dismissal. Where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.

Appellate intervention based on inadequacy of reasons is justifiable when the inadequacy prejudices the appellant’s exercise of his or her legal rights to an appeal or impedes or prevents an appellate court from understanding the basis of the trial decision: Canadian Broadcasting Corp. Pension Plan (Trustee of) v. BF Realty Holdings Ltd., [2002] O.J. No. 2125, 214 D.L.R. (4th) 121 (C.A.), at para. 64.

In reaching this conclusion, the trial judge relied on the Supreme Court of Canada’s decision in Farber v. Royal Trust Co., [1997] 1 S.C.R. 846, [1996] S.C.J. No. 118. At para. 36 of Farber, the Supreme Court explained that “a demotion, which generally means less prestige and status, is a substantial change to the essential terms of an employment contract that warrants a finding that the employee has been constructively dismissed”.

The Potter test for constructive dismissal

The test that Potter establishes for constructive dismissal consists of two branches. Satisfaction of either branch is sufficient for a finding of constructive dismissal.


The first branch of the Potter test has two steps. First, the court must determine objectively whether a breach has occurred. To do so, the court must ascertain whether the employer has unilaterally changed the contract. If an express or an implied term gives the employer the authority to make the change or if the employee consents or acquiesces in it, the change is not a unilateral act and will not constitute a breach. To qualify as a breach, the change must also be detrimental to the employee. Second, once it has been objectively established that a breach occurred, the court must ask whether a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed (Potter, at paras. 37-39).

The second branch of the Potter test necessarily requires a different approach. On this branch, constructive dismissal consists of conduct that, when viewed in light of all the circumstances, would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract (Potter, at para. 42).

The law governing this issue, as enunciated in Evans v. Teamsters, Local 31, [2008] 1 S.C.R. 661, [2008] S.C.J. No. 20, 2008 SCC 20, at para. 30, can be summarized as follows. Where an employer offers an employee a chance to mitigate damages by accepting a different position, the central issue is whether a reasonable person in the employee’s position would have accepted the offer. This is an objective standard, on which the employer bears the burden of proof: Evans, at para. 35. The employee is not obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation. The non-tangible elements of the situation, including work atmosphere, stigma and loss of dignity, as well as the tangible elements, such as the nature and conditions of employment, must be considered in determining whether the objective standard has been met.

A trial judge’s determination of the period of reasonable notice is entitled to considerable deference: Minott v. O’Shanter Development Co. (1999), 42 O.R. (3d) 321, [1999] O.J. No. 5 (C.A.), at pp. 343-44 O.R.

It is trite law that a trial judge’s factual findings are to be afforded deference and an appellate court is not to disturb them absent palpable and overriding error.

There is no magic formula that an employee must follow when making reasonable efforts to obtain other employment and thereby mitigate his or her loss. When an employer alleges that a former employee has not reasonably mitigated his or her losses, “the question is whether [the employee] has stood idly or unreasonably by, or has tried without success to obtain other employment”: Michaels v. Red Deer College, [1976] 2 S.C.R. 324, [1975] S.C.J. No. 81, at p. 331 S.C.R. A terminated employee is entitled to consider her own long-term interests, so she will not fail to mitigate merely because she chooses to take some career risks that might not minimize the compensation that her former employer will owe to her: Peet v. Babcock & Wilcox Industries Inc. (2001), 53 O.R. (3d) 321, [2001] O.J. No. 1129 (C.A.), at para. 8.

An employee who is dismissed without reasonable notice is entitled to damages for breach of contract based on the employment income the employee would have earned during the reasonable notice period, less any amounts received in mitigation of loss during the notice period: Sylvester v. British Columbia, [1997] 2 S.C.R. 315, [1997] S.C.J. No. 58, at paras. 14-17.

EI benefits

In my view, the law is clear: EI benefits are not to be deducted from damages awarded for wrongful dismissal. Accordingly, the damages award was not to be reduced by the $7,150 of EI benefits that Ms. Brake received in 2013.

The Supreme Court addressed the deductibility of EI benefits from wrongful dismissal damages in Jack Cewe Ltd. v. Jorgenson, [1980] 1 S.C.R. 812, [1980] S.C.J. No. 24. In that case, Mr. Jorgenson successfully sued Jack Cewe Ltd. (the “company”) for wrongful dismissal. The trial judge awarded damages equivalent to a year’s salary. From that amount, the trial judge deducted, among other things, the EI benefits2 that Mr. Jorgen- son had received during the 12-month notice period. The British Columbia Court of Appeal held that the EI benefits should not be deducted. The company appealed to the Supreme Court and argued that EI benefits should be deducted in proportion to the company’s contribution. Its appeal was dismissed.

At p. 818 S.C.R. of Cewe, Pigeon J., writing for the court, stated that he found the company’s position “untenable”. He explained:

The payment of [EI] contributions by the employer was an obligation incurred by reason of [Mr. Jorgenson’s] employment, therefore, to the extent that the payment of those contributions resulted in the provision of [EI] benefits, these are a consequence of the contract of employment and, consequently, cannot be deducted from damages for wrongful dismissal.

This court expressed a similar view in Peck v. Levesque Plywood Ltd. (1979), 27 O.R. (2d) 108, [1979] O.J. No. 4468 (C.A.). In Peck, after awarding an employee damages for wrongful dismissal, the trial judge reduced the award by the amount of EI benefits that the employee received during the notice period. This court allowed the employee’s cross-appeal, holding that the damages award should not be reduced by the amount of the EI benefits.

Justice Dubin (as he then was), writing for this court, thoroughly canvassed the jurisprudence from across Canada on the question of whether there should be a deduction of amounts.

Employment income in the statutory entitlement period is not subject to mitigation

When Ms. Brake’s employment was wrongfully terminated, she was entitled to two types of compensation — termination and severance pay under the Act (“statutory entitlements”) and common law damages for wrongful dismissal. In her amended statement of claim, she claimed for both. At para. 35 of the claim, she states that she had been paid no compensation in lieu of reasonable notice and none of the amounts required by the Act.

The trial judge was entitled to make a global award encompassing both Ms. Brake’s statutory entitlements and her common-law damages, provided that there was no double recovery: Stevens v. Globe and Mail (1996), 28 O.R. (3d) 481, [1996] O.J. No. 1614 (C.A.), at p. 493 O.R. That is what the trial judge did in this case: he awarded damages based on what Ms. Brake’s remuneration would have been over a 20-month time period but made it clear that the damages award was inclusive of Ms. Brake’s statutory entitlements. Thus, as I indicated earlier, the damages award of 20 months was not solely compensation at common law for wrongful dismissal. The 20-month damages award included Ms. Brake’s statutory entitlements.

Statutory entitlements are not damages. Ms. Brake was entitled to receive her statutory entitlements even if she secured a new full-time job the day after the appellant terminated her employment. Therefore, the income that Ms. Brake earned during her statutory entitlement period is not subject to deduction as “mitigation income”. In reaching this view, I adopt the reasons of the Divisional Court in Boland v. APV Canada Inc., [2005] O.J. No. 510, 250 D.L.R. (4th) 376 (Div. Ct.).

In Boland, the employee received part of his statutory severance entitlement at the time that his employment was terminated. He brought an action in which he sought damages for wrongful dismissal and to recover the balance of his statutory entitlements. He then sought summary judgment for payment of the balance of his statutory entitlements on the basis that such an amount was not subject to mitigation.

The motion judge refused summary judgment because, among other things, he was of the view that entitlements under the Act were not enforceable by action but only through the administrative procedures in the Act.

The Divisional Court disagreed. It allowed the appeal, set aside the order of the motion judge, and substituted an order granting summary judgment for the outstanding balance of the employee’s statutory entitlements.

Lane J., writing for the Divisional Court, addressed the question of whether, if an action is brought, statutory entitlements are subject to mitigation. He concluded that they are not.

He noted that when such entitlements are obtained through the administrative route, they are not subject to mitigation (at para. 21). He then summarized, at para. 22, the argument of the director, who had intervened, as follows:

The [Act] benefits are minimum entitlements and may not be reduced whether sought in an action or by the administrative route. The [Act] entitlements are not damages. They are not linked to any actual loss suffered by the employee, but are payable in any event. They are to be paid “promptly”, a legislative indication that the employer is not entitled to wait and see if the employee becomes re-employed.

At para. 23, Lane J. stated that he agreed with the director’s position and went on to further explain:

[Act] entitlements are not linked, as damages are, to the criteria established in Bardal such as the age of the employee, the likely length of time to find another position, the actual finding of another position etc. They are payable in any event. In my view, it is illogical to suppose that the Legislature intended that such payments would become “damages” if sought in an action, but not when sought administratively. They are minimum sums to be paid by the employer and subjecting them to reduction by reason of sums received from others removes their character as minimum. Their character as minimums was clearly recognized in Machtinger and in Rizzo & Rizzo Shoes Ltd., Re.
(Citations omitted; emphasis added)
.

For the reasons given by Lane J. in Boland, statutory entitlements are not subject to mitigation. Therefore, any employment income that Ms. Brake earned during her statutory entitlement period is not deductible as mitigation income.

Since the employment income that Ms. Brake earned during her statutory entitlement period is not deductible from the damages award, the trial judge ought to have determined her statutory entitlement period and identified which items of employment income were attributable to that period and which were attributable to the balance of the notice period.

In a wrongful dismissal action, an employer is generally entitled to a deduction for income earned by the dismissed employee from other sources during the common law notice period. However, as Rand J. explained in Karas v. Rowlett, [1944] S.C.R. 1, [1943] S.C.J. No. 46, at p. 8 S.C.R., for income earned by the plaintiff after a breach of contract to be deductible from damages, “the performance in mitigation and that provided or contemplated under the original contract must be mutually exclusive, and the mitigation, in that sense, is a substitute for the other”. Therefore, if an employee has committed herself to full-time employment with one employer, but her employment contract permits for simultaneous employment with another employer, and the first employer terminates her without notice, any income from the second employer that she could have earned while continuing with the first is not deductible from her damages: see S.M. Waddams, The Law of Damages, looseleaf (Rel. Nov. 2016), 2nd ed. (Toronto: Canada Law Book, 1991), at para. 15.780.

The Saskatchewan Court of Appeal applied this principle in McIntosh v. Saskatchewan Water Corp., [1989] S.J. No. 318, 26 C.C.E.L. 196 (C.A.).

In McIntosh, a resource economist was wrongfully dismissed from his position. During the notice period, he taught an evening class in economics for which he was paid the sum of $3,674. The trial judge did not deduct that sum from the damages award because Mr. McIntosh “could have taught this evening course if he had remained in the respondent’s employ”.

At pp. 201-202 C.C.E.L. of McIntosh, the Saskatchewan Court of Appeal specifically ratified this aspect of the trial decision, stating that in light of the trial judge’s finding with respect to the teaching income, it would make no deduction for that income.

Where the employer dismisses the employee and fails to give the employee the benefits to which the employee is entitled under the Act, the employee may claim both those benefits and common law damages in a single civil action, so long as there is no double recovery. This approach follows from Stevens. See, also, Boland, at paras. 11-17.

In this proceeding, Ms. Brake sought compensation for both common law damages and statutory entitlements. The trial judge was entitled to make the damages award in the fashion that he did, namely, based on 20 months’ compensation in lieu of notice and inclusive of statutory benefits as required by the Act.

In any event, the respondent did not bring a cross- appeal so it is not open to the court to consider increasing the damages award.

**source: Ontario reports

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