Two Recent Cases: Some Relief For Employers

by Brent Foreman - May 29, 2008

Two recent decisions – one by the Supreme Court of Canada and the other by the Ontario Court of Appeal – provide some welcome, albeit limited, relief for employers.

Evans v. Teamsters, Local No. 31

In this decision, the Supreme Court analyzed the extent of the duty imposed upon a dismissed employee to mitigate his or her losses arising from termination. The Teamsters Union had dismissed one of its employees (a business agent) and then immediately engaged in negotiations with him regarding an appropriate termination package. The negotiations dragged on for 5 months with no resolution, during which time the Union maintained the employee’s pay and benefits. As the parties were unable to reach an agreement, the Union asked the employee to return to work for the remainder of the 24 month notice period that he had been seeking (i.e. work a further 19 months which, when added to the 5 months pay and benefits he had already received, would result in a total “notice period” of 24 months). The employee stated he would do so only if the Union rescinded the termination letter. The Union refused and stated that if the employee did not return he would be dismissed for cause. The employee did not return and sued for wrongful dismissal. He was successful at trial but the decision was overturned on appeal. The employee then appealed to the Supreme Court of Canada.

In a somewhat surprising decision (given its recent record of decisions favouring employees), the Supreme Court concluded that the duty to mitigate operated in this case so as to oblige the employee to accept the Union’s return to work offer. The court stated that in the absence of conditions rendering such a return unreasonable on an objective basis, an employee is expected to mitigate by returning if requested by the employer. The court stated that a “multi-factored and contextual analysis” was required and that in the absence of evidence of “an atmosphere of hostility, embarrassment or humiliation”, a return to work in response to a request from the dismissing employer would be appropriate.

Mulvihill v. Ottawa (City)

In Mulvihill, the Ontario Court of Appeal reviewed the circumstances when Wallace damages will be (or will not be) appropriate. A few years previously, the Supreme Court in Wallace had held that it is appropriate for the court to compensate an employee, by means of an extension of the period of “reasonable notice”, when the employer’s conduct in relation to the manner of the dismissal falls below an acceptable standard (for example, if the employer, during the course of the dismissal, fails to act in a candid, reasonable, honest and forthright manner or engages in conduct that is unfair or in bad faith or unduly insensitive).

Mulvihill involved a difficult and combative employee whose relationship with her fellow employees and supervisors was strained. Ultimately, she filed a harassment complaint and then went on sick leave after providing a vague doctor’s note. The harassment complaint was investigated while she was on sick leave and then a meeting was arranged with her to discuss the matter further. The meeting did not go well, with the employee being very negative and antagonistic. Shortly thereafter, she was advised that the investigator had found no basis for her complaint. The employee responded by way of a strongly worded letter in which she made it clear that she did not accept the investigator’s findings. A few days later, the City sent a letter to the employee (she was still on sick leave), dismissing her for cause. The employee responded by suing for wrongful dismissal. The City ultimately dropped the allegations of cause at the commencement of trial and therefore, the only issue remaining was the quantum of the employee’s entitlement to pay in lieu of notice. The trial judge found that the employee was entitled to 4.5 months notice under her employment contract. However, he extended the notice period to a total of 10 months on the grounds that Wallace damages were warranted. The City appealed the award of Wallace damages.

The Court of Appeal ruled in favour of the City. With respect to the fact that the City initially had alleged cause, only to drop those allegations at the commencement of trial, the Court of Appeal stated the following:

“The mere fact that cause is alleged, but not ultimately proven, does not automatically mean that Wallace damages are to be awarded. So long as an employer has a reasonable basis on which to believe it can dismiss an employee for cause, the employer has the right to take that position without fear that failure to succeed on the point will automatically expose it to a finding of bad faith.

As for the fact that the termination took place while the employee was absent from work on sick leave, the court stated:

“…the trial judge also found that the City made a "mistake" in dismissing Ms. Mulvihill while she was on sick leave. As explained above, the legal standard against which conduct is to be measured for the purposes of Wallace is not whether an employer made a mistake but, rather, whether the employer engaged in unfair or bad faith conduct. A mistake is not conduct that can be said to be unfair or bad faith…..The mere fact that Ms. Mulvihill was on sick leave at the time of termination does not necessarily mean the dismissal was conducted in an unfair or bad faith manner. There must be other evidence of bad faith, unfair dealing or "playing hardball”, such as cancellation of accommodation for an employee's illness as a reprisal for the employee having made a human rights claim.”

Again, the decision of the Court of Appeal is somewhat surprising. A number of cases in the past have found that the termination, for cause, of an employee who is on sick leave is inappropriate and will entitle the employee to additional damages. Similarly, persisting in allegations of cause until the eve of trial and then dropping those allegations often has resulted in additional damage awards for dismissed employees.

Summary

The decision of the Court of Appeal in Mulvihill clearly was heavily influenced by the specific facts of the case, particularly the ample evidence of the employee’s inappropriate conduct. Consequently, we do not interpret Mulvihill as constituting a general judicial endorsement of either: (1) terminating employees for cause while they are on sick leave or (2) alleging cause but then dropping such allegations at the last moment upon the commencement of trial. However, despite this limitation, the case may indeed have some broader significance. That is, the decision of the Court of Appeal in Mulvihill, as well as the decision of the Supreme Court in Evans, may indicate a greater willingness by the courts to consider the employer’s perspective. This may be so especially in situations where the employee has engaged in “challenging” behaviour or where there is an absence of employer conduct to cause feelings of hostility, embarrassment or humiliation on the part of the dismissed employee.