The recent Ontario Court of Appeal decision of Farwell v. Citair Inc., 2014 ONCA 177, demonstrates how the offering of substitute employment when an employee has been constructively dismissed can have a serious effect on the damages payable for wrongful dismissal.

As a result of a change in product focus, the plaintiff, who had been employed as Operations Manager/Vice President of Operations was to be transferred to the role of Purchasing Manager, a role which he had held prior to his promotion but which was viewed as less prestigious with less status and responsibility. The employee refused the new position and sued for wrongful termination. treated the transfer as constructive dismissal.

At trial, it was determined that the employee had been constructively dismissed and was entitled to 24 months of notice, based on the employee’s managerial role, his 58 years of age, and his employment with the plaintiff for a period of 38 years. The trial judge further held that the employee should not suffer a reduction in damages for failing to accept the demotion since refusal to accept a “humiliating and embarrassing” demotion did not amount to a failure to mitigate.

The decision was appealed but the Ontario Court of Appeal upheld the judgement. Relying on the approach to constructive dismissal set out by the Supreme Court of Canada the Court of Appeal affirmed that “[a] constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee.” The loss of status, prestige and responsibilities supported a finding of constructive dismissal. The Court also affirmed that the length of notice awarded (24 months) was reasonable.

The bulk of the reasons of the Court of Appeal addressed the question of mitigation – in particular whether the employee could refuse the new position without a reduction in damages. The facts with respect to the demotion were quite favourable to the employer. The plaintiff had a positive relationship with his colleagues. He was seen as an excellent Purchasing Manager and merely somewhat mismatched for the role of Operations Manager, particularly given a recent change in corporate focus to a new product in which another employee was an expert. Notwithstanding the mismatch, the change in role was promoted by business considerations, and was not the result of any animus against or desire to terminate the plaintiff. Reviewing these facts, the Court noted that “[t]here may also be merit in the argument that the circumstances here would support the imposition of an obligation on Mr. Farwell to mitigate by working through the notice period.”

Nonetheless, the Court of Appeal held that there was no breach of the duty to mitigate. The reason for this was that the employer made a technical error. An opportunity to mitigate only arises if the employer offers substitute employment after the employee has informed the employer that he or she has been wrongfully terminated. In this case, the employer merely offered the position of Purchasing Manager initially, but did not offer it again once the employee decided that he had been wrongfully terminated. As such, no mitigation opportunity was offered, and the employee could not be said to have failed to mitigate – “To trigger this form of mitigation duty, the appellant was therefore obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he refused to accept the position of Purchasing Manager and told the Appellant that he was treating the reorganization as constructive and wrongful dismissal.” Under the Court of Appeal’s analysis then, a reiteration of the offer is a necessary step if the employer wishes to rely upon the employee’s refusal of a substitute position as a failure to mitigate.

In light of this reasoning of the Court of Appeal, it would be very prudent for employers to be very clear in situations where there are constructive dismissal allegations to ensure that any alternative  employment offers are positioned clearly as an opportunity for mitigation – to ensure there is no ambiguity of that fact should the issue be raised later in support of the employer’s arguments regarding mitigation.