by William R. Gale
There are two vexing questions which arise in every constructive dismissal situation. The first question is whether the change to the terms of the employee's contract of employment is substantial enough to trigger a constructive dismissal. The second is whether the employee has an obligation to remain in the new, reduced position provided by the employer while seeking alternative employment.
Perhaps the recent Ontario Court of Appeal decision, in Schumacher v. Toronto-Dominion Bank (unreported, May 19, 1999, Ont. C.A.) [*099146024 - 14 pp.], affg 147 D.L.R. ,(4th) 128, 29 C.C.E.L. (2d) 96 [ *097143017 - 92 pp.], supplementary reasons 153 D.L.R. (4th) 187 (Ont. Ct. (Gen. Div.)) [*097325054 - 7 pp.], will assist in providing clear guidelines to these two issues.
At trial, the Ontario Court (General Division) awarded over $1.7 million in damages to Mr. Schumacher as a result of his constructive dismissal from the Toronto Dominion Bank ("TD"): The plaintiff had been employed for approximately 11 years by TD and, at the time of his constructive dismissal, was a senior vice-president.
On appeal TD argued:
- The changes to Mr. Schumacher's responsibilities did not constitute a constructive dismissal.
- If the plaintiff was constructively dismissed as a result of the changes, he had a duty to remain with the bank in the new role to mitigate his damages.
The Court of Appeal rejected both of TD's arguments in 4. dismissing its appeal. On the first point, TD argued that the changes in Mr. Schumacher's responsibilities did not amount to a constructive dismissal; rather the plaintiff refused to accept a new assignment. The changes to the plaintiff's duties came without notice to him when TD hired a new vice-chairman to take over the plaintiff's responsibilities for TD's fixed income, money market trading, bond borrowing and lending businesses. The plaintiff was to retain responsibility for foreign exchange, derivatives and bank funding. In addition, as a result of the changes, there would have been a loss in the potential amount of bonus that Mr. Schumacher could have earned which the trial judge found [at p.174] "may be as high as 25-30% . . . [but] was at least 15%".
The trial judge's findings on the changes to Mr. Schumacher's duties, with which the Court of Appeal concurred, can be summarized as follows:
- Two of the five bank products for which Mr. Schumacher was formerly responsible were no longer his responsibility.
- The fixed income product for which the new vice-chair man was now responsible was the product with the great est potential for growth and was considered to be the "flagship business" of any investment banking operation.
- The "Navigator Project" which was an extensive reorganization of the treasury group's operations within the bank, and on which the plaintiff had been working over the last two years, was now abandoned and the plaintiff's achievements in this regard were obliterated.
- Schumacher's objectives, as described in a position document prepared as part of his job function, could not be met in many respects because he no longer had control or direction over important products and research.
In deciding that Mr. Schumacher had been constructively dismissed as a result of the changes to his responsibilities and his bonus, the Court of Appeal quoted from the most recent decision of the Supreme Court of Canada on the issue of constructive dismissal, Farber v. Royal Trust Co. (1997), 145 D.L.R. (4th) 1 at pp. 9-10,  I S.C.R. 846 [*097090006 - 34 pp.], as follows:
To reach the conclusion that an employee has been constructively dismissed, the court must therefore determine whether the unilateral changes imposed by the employer substantially altered the essential terms of the employee's contract of employment. For this purpose, the judge must ask whether, at the time the offer was made, 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.
Moreover, for the employment contract to be resiliated, it is not necessary for the employer to have intended to force the employee to leave his or her employment or to have been acting in bad faith when making substantial changes to the contract's essential terms.
Having decided that the removal of significant portions of Mr. Schumacher's responsibilities and the change in his bonus plan were such that a reasonable person in the plaintiff's situation would have felt that the essential terms of the employment contract had been substantially changed, the Court of Appeal then turned its attention to the issue of whether Mr. Schumacher had a duty to remain in the diminished position to mitigate his damages. However, the Court of Appeal found that it was not necessary for the trial judge to even have considered that issue since it was reasonable for the trial judge to have found that the bank never offered Mr. Schumacher the option of working at the alternate position during the notice period.
This particular set of circumstances arose because the plaintiff's superiors had engaged in a series of correspondence with both the plaintiff and his lawyer. In the letters and memorandums which were exchanged, Mr. Schumacher had offered to work in the diminished position pending negotiation of a severance package. Notwithstanding the plaintiff's open offer to carry on, the bank insisted- that he accept the new position unconditionally. In addition, the employer never warned the plaintiff that he would be dismissed if he did not accept the new position. It simply took the position that the plaintiff had effectively resigned by not accepting the job. The Court of Appeal had little difficulty in agreeing with the trial judge that the plaintiff had not resigned, nor had he ever been given an option to work out the notice period.
The issues raised in this decision are not novel. The Court of Appeal has, however, confirmed that employees who reasonably believe that there have been substantial changes to their positions' responsibilities and/or compensation may take steps to resist and ultimately to refuse to accept those changes without prejudicing their right to sue for constructive dismissal. Constructive dismissal continues to be a minefield of potential hazards and therefore employees are wise to consult legal counsel before taking any serious steps.
This article is excerpted from The Employment Bulletin.
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