Claims when rehiring a terminated employee
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If an employee is terminated and later rehired in a different capacity by the same employer, have they really been terminated? Is the employee entitled to claim damages through an action commenced for wrongful dismissal or constructive dismissal?

This article will set out basic principles of wrongful dismissal and constructive dismissal before analyzing a recent decision of the Ontario Superior Court of Justice in which an employee claimed damages for wrongful dismissal after being terminated and then rehired by the same employer at a lower position with a reduced salary.

Has the employee been wrongfully dismissed?

If an employee is terminated by an employer that does not assert its legal justification for terminating the individual’s employment without notice, or compensation in lieu of notice, the employee is deemed to have been terminated without cause. If an employee does not receive either reasonable notice of termination or reasonable compensation in lieu thereof, they may have a claim for wrongful dismissal.

A court may make a finding that a terminated employee has been wrongfully dismissed even if they are later employed by the same employer in a demoted position.

Has the employee been constructively dismissed?

An employee that has been demoted may be able to make a claim for constructive dismissal. If the employer unilaterally and fundamentally changes one or more of the existing terms and conditions of the employment relationship it may amount to a breach of contract, or constructive dismissal.

Constructive dismissal disputes can be complex and challenging for the employee to prove, therefore guidance is generally sought from a knowledgeable employment lawyer. It is imperative to speak to a lawyer early because failure to resign within a reasonable timeframe could be viewed as passive acceptance of the circumstances by the employee.

Is the employee required to accept the new position in order to mitigate their damages?

Employees that have been wrongfully dismissed or constructively dismissed have a duty to mitigate their damages by attempting to secure alternative employment.

It is possible that an employee may be required to mitigate their damages by returning to work for the same employer if the employer offers the employee an opportunity to do so. However, the courts will not require the employee to do this in every circumstance, for example, if continuing employment with the same employer would result in working in “an atmosphere of hostility, embarrassment or humiliation”.

Employee worked in a new position for the same employer after termination

In Amerato v TST-CF Solutions LP, the plaintiff employee began working for the defendant in 2005. She was later promoted to Customer Service Supervisor before going on short-term disability leave in June 2020. The initial short-term leave transitioned to long-term disability in December and she began receiving benefits equivalent to 60% of her pre-leave salary.

In January 2021, the employer said that the employee’s employment was terminated effective on February 1, 2021, and subsequently confirmed this in a letter. The employer claimed that the termination was due to a merger of the company and challenges related to the COVID-19 pandemic. That same day, the employer issued another letter to the employee offering her a job change to Senior Customer Service Representative with a 20% salary reduction.

The plaintiff’s lawyer wrote to the defendant, taking the position that the employee had been wrongfully terminated. The lawyer later stated that the plaintiff would work in her new position to mitigate her damages without waiving her legal rights. The employee continued to work for the defendant for four hours a day, three days per week, with a top-up income paid from her long-term disability insurer.

Court finds employee wrongfully terminated

Justice Chalmers found that the letters from the employer were clear – the employee was first terminated and then offered a job change. His Honour rejected the employer’s argument that the employee was presented with two options, termination or job change, and selected the latter.

As an aside, his Honour noted that:

“If I had not found that [the employee] had been terminated from her employment, I would have found she had been constructively dismissed. There is no dispute that the new position is a demotion from her previous position as a supervisor and pays a lower salary.”

As the plaintiff had been dismissed, his Honour went on to apply the Bardal factors to assist in determining a reasonable notice period which the employee should have been entitled to, and ultimately decided that a reasonable notice period of 18 months was appropriate in the circumstances.

Damages reduced by income earned in notice period, but not by amount of disability benefits

At the date of termination, the employee was receiving long-term disability benefits. Justice Chalmers explained that the issue of whether the disability benefits received during the notice period ought to be deducted from the award of damages was to be determined by the terms of the employment contract and the intention of the parties.

The employee had paid a portion of the premiums for her disability coverage, therefore his Honour held that the employer was not entitled to a deduction of the long-term disability benefits received by the plaintiff during the notice period. Whether the insurer would require reimbursement of the benefits paid during a period when the employee was receiving damages for wrongful dismissal was a separate issue between the plaintiff and the insurer.

However, Justice Chalmers noted that income earned by the employee during the notice period is generally treated as mitigation of loss. As the employee had accepted the demotion and was working for the employer 12 hours per week, the employer was entitled to a credit for the amount the employee had earned in income during the notice period. As a result, the Court awarded damages to the employee in the amount of $88,000 (18 months of pre-termination salary), reduced by the income she earned through her employment during the notice period.

Contact Baker & Company Employment Lawyers in Toronto for Guidance on Employee Termination

The employment lawyers at Baker & Company in Toronto regularly work with both employees and employers with respect to managing risk, and enforcing rights, related to wrongful dismissals. It is vital that these documents be kept up to date to ensure that they comply with all relevant legislation and that an employer’s obligations have been satisfied while also mitigating an employer’s liability and risk. To speak with a lawyer about a wrongful dismissal, or other employment law issue contact us online or by phone at 416-777-0100.

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