Can your employer fire you twice?

Last year, there was a wrongful dismissal decision out of Calgary. My initial assessment was that it was quite a good decision, and people who follow me know that I'm generally pretty critical about wrongful dismissal decisions. But the more I think about it, the more I think it touches on some of the more problematic aspects of employment law. This is the decision that really prompted me to start writing my Constructive Dismissal series.

More recently, the Alberta Court of Appeal heard the appeal of this decision, and made things SO MUCH WORSE.

The case is Kosteckyj v. Paramount Resources Ltd., and it dealt with an employee who - at the start of the pandemic - had her compensation reduced significantly, before she was dismissed three weeks later.

This is not an uncommon story. Lots of employers went through tiers of reductions as the scope of the pandemic's impact became clear. Pay cuts, more pay cuts, reduced hours, temporary layoffs, permanent layoffs. I wouldn't suggest as a general proposition that there's employer bad faith in doing so, but an employer doesn't necessarily have the right to engage in such conduct without notice.

So it's an interesting fact-pattern, with a number of useful and important takeaways:

1. COVID is a relevant factor in assessing the reasonable notice period, AND in assessing the reasonableness of an employee's mitigation efforts.
2. An employer can't plead and/or rely upon an offer of pay in lieu of notice.
3. An employee who faces a compensation cut prior to the ultimate termination can seek compensation on the basis of the old (higher) rate of compensation, but that notice period starts ticking at the date of the compensation reduction, meaning that earnings after that date are reduced as mitigation earnings.

The first two are right. The third is where I'm starting to question.

Also, on my first skim of the decision, I thought it had correctly applied Matthews. Now I realize that it didn't. It's a close case, though, and hard to be too critical.

The COVID Double-Dip

Employers who dismiss employees during an economic downturn typically have to be prepared to pay more. In Alberta, at present, this is certainly the case.

The 'availability of replacement employment' is an important factor for two reasons: Firstly, at the front end, it affects the assessment of what's 'reasonable'.  If you should realistically be able to go out, send out a few resumes, and get hired right away (as is often the case during Alberta booms), then reasonable notice is going to be relatively low.  Moreover, if and when you do get hired, you're making 'mitigation' earnings that may reduce your old employer's liabilities.  But conversely, when jobs are hard to come by, it both extends the notice period up front, and makes it practically less likely that you can be expected to obtain mitigation income.

Employers often argue that 'reasonableness' should include an assessment of the employer's position as well, in that an economic downturn and pandemic create economic hardship that necessitate downsizing. Aside from the occasional judicial outlier, this argument is not usually successful.

However, in a pandemic, under some circumstances, it's possible that some employers may be able to rely on mandatory public health measures to justify actions that might otherwise be a breach of contract.

Settlement Privilege

When you make an offer, which isn't accepted, it's not supposed to be put by either party before the court until after judgment.  The parties have a reasonable expectation that the court will decide the matter on its merits, not on the basis of the settlement positions advanced by the parties - so, to foster open settlement discussions, we protect those discussions from disclosure.

This is complicated in termination letters, which often roll 'with prejudice' and 'without prejudice' contents into one piece of correspondence.  "You're fired" is always WITH prejudice.  "We'll pay you x if you sign a release" is always WITHOUT prejudice.

In your 'standard' termination process, the employer dismisses, pays statutory minimums, and then offers a further amount in exchange for a release. No release? No further amount is paid. This is a normal practice (albeit one that Justice Echlin expressed serious concerns about in Brito).

The fact that the employer offered more - whether or not it should have been 'enough' - is irrelevant to the employee's entitlements.  And inadmissible.  An employer who wants to go into the proceeding bragging about how 'reasonable' they are needs to actually provide the employee's entitlements without holding it back for a release.  (Benefits excepted, that's not necessarily something employers should do, but you can't ask the court to say that the notice you gave was reasonable when you didn't actually give that notice.)

Bonuses

This is something we still have to be careful and nuanced about, because it DOES still depend on the terms of the bonus plan.  But not in the way that we think.

Kosteckyj's notice period took her to the end of 2020.  By the end of the notice period, she would have been paid her 2019 bonus, and done all the work associated with the 2020 bonus, BUT she wouldn't have been paid it as at the end of the notice period.

The terms of the bonus plan terminated her entitlements under it upon termination, including - expressly - that in the event of a "without cause" termination, it terminates on the notice date, and not at the end of the notice period.

The language is clever, in the sense that it appears to apply in the same way to "working notice" - in other words, even if the employer complies with the obligation to give reasonable notice, the bonus that comes due while you're still working...is not something you're entitled to.  Even though you're still actively employed, for the purposes of the bonus plan you're no longer treated as an employee.  That feature does distinguish it from most 'active employment' clauses.

Too clever by half, however, because it runs into two separate statutory problems:

Firstly, the idea that the employer can contract to reduce the employee's earnings during a period of working notice runs directly against the plain language of s.61 of Alberta's Employment Standards Code:

Neither the wages, wage rate, nor any other term or condition of employment may be reduced by an employer between the time termination notice is given by the employer or employee and the date employment terminates, whether or not work is required to be performed during that period.

Secondly, bonuses, subject to a narrow exception that doesn't apply here, fall within the statutory definition of termination pay - meaning that, if a bonus vests within the statutory notice period, it becomes part of the employer's statutory obligation to pay, and attempting to contract around that obligation, as the language here expressly does, is illegal and void.

So she should have gotten her bonus in respect of 2019.

2020 is a different question. It's long been my view that 'active employment' clauses can be sufficient to exclude a bonus that is earned but not vested during the reasonable notice period.

The question is relatively different: The presumption is going to be that periodic benefits like bonuses are earned gradually - so if I get $12,000 each January in respect of the previous calendar year, I'm going to presume that, if I resign at the end of June, I've earned half that and should have it paid as earned wages.  So, similarly, if my reasonable notice period carries me to the end of June, then my damages include those wages I would have earned.  But 'active employment' language rebuts that presumption, and only gives access to bonuses that would have been paid out during the reasonable notice period.

The Double-Termination

This is where things get really interesting. Well, interesting for an employment law nerd, at least.

I had a file with similar features in the same time period, and I found myself theorizing that an employee in such a case has the choice of claiming wrongful dismissal damages flowing from the actual termination OR from the earlier constructive dismissal:

-If you're suing on the basis of the actual dismissal, you're bound to use the compensation package received immediately before that dismissal - including the reduction in wages.  But you get it for the whole notice period.

-If you're suing in constructive dismissal instead, you can seek your pre-reduction rate, but you're taking the position that the breach occurred prior to the actual termination of the contract, and as such your post-breach earnings are deducted as mitigation earnings.

It's a 'greater of' thing.  And this analysis is precisely what the judge applied in Kosteckyj, finding that the reduction was a constructive dismissal, awarding damages at the higher rate, and backing out the money earned after the constructive dismissal.

The Alberta Court of Appeal, on the other hand, found that - by not quitting or rejecting the change prior to termination - she had accepted the contract. Justice Wakeling argued for a bright line of 10 days. The other two Justices disagreed, but thought that the amount of time in this case was enough.

This approach is not only DEEPLY inconsistent with the principles of contract law, but also catastrophic to employee rights: When an employer unilaterally and fundamentally changes the contract terms, you have under three weeks to reject those changes, or they become annexed to the contract. Why should an employer ever attempt to secure employee assent to changed terms, when they can so easily do it unilaterally? (Incidentally, the cases where employees have been found to have *rejected* a change, for the most part, are cases where the employer actually ASKED the employee to sign off on it first.)

So next time an employer comes to me saying "I have this manager with 40 years of service making $100,000 per year. I really want to get rid of them right away, but I'd like to not have to pay out $200k to do it", what do I tell that employer? If Kosteckyj is good law, I can (and probably have to) suggest a course of action of unilaterally cutting wages once or twice before pulling the trigger on termination. If the employee isn't quick enough to decide to reject the change, or resign employment, then you've 'gotten away with it', and now they can terminate without notice and only provide pay in lieu based on the reduced rate.

It's an approach that INVITES employers to exploit their position of greater bargaining power by unilaterally imposing new terms and banking on the employee being too scared of unemployment to do anything.

The core virtue of the QB 'greater of' approach is that it doesn't leave a lot of room for employer abuse: The employer can't reduce its own liabilities by unilaterally reducing compensation in advance of a wrongful dismissal.  But in a case where the reduction of pay is less dramatic and/or longer before the actual termination, there's less basis for the employee to seek compensation at the higher rate.  It seems, until you start looking REALLY closely, like a fair analytical framework in almost every way.

But, as I tend to, let's complicate things by asking a bonus question - one which, having actually parsed the argument below, I changed my own mind.  People who don't want their heads to hurt might want to stop reading here, and jump right to the italicized disclaimer at the bottom.

Is there ever a scenario where an employee might be able to claim two distinct wrongful dismissal remedies from the same employer?

The answer has to be yes, but defining exactly where that scenario arises, and what it entails, is tricky.

Let's start with an Evans-type case: You dismiss me, I sue in wrongful dismissal, then you hire me back. And suppose I say "sure", but - as I'm entitled to - I continue to seek lost pay flowing from the wrongful dismissal, including a top-up based on any lower amounts of compensation I get in my new role.  THEN you dismiss me again, in breach of the new contract.  Certainly, I can sue in breach of the new contract, too, and seek damages for that assuming they aren't totally supplanted by the breach of the old contract.

But what about a constructive dismissal case where I never left?  A Russo v. Kerr type of case? You cut my pay, I stay in the job and sue for lost income over the notice period...and then I never find a better job, and continue to be employed in the role indefinitely. Until, sometime down the road, you decide to dismiss me.  What impact does my previous constructive dismissal action have on this new termination without notice?

Let's lift up the rug and start looking at doctrine.

I'm going to suggest that what's happening, in a constructive dismissal scenario where the employee stays in the job - whether or not they protest, and whether or not they sue - is that the employer has breached the existing contract, but that the employee's choice to stay in the workplace can factually have one of two results: (1) They accept the repudiation, treat the original contract as at an end, and take the revised employment relationship in mitigation of the damages flowing from the constructive dismissal OR (2) affirm the original contract, continue to perform their job under the original contract, and accrue entitlements as under the original contract.

Just showing up at work, without more, should be interpreted as option 2 rather than option 1. Acceptance of a repudiation requires something unambiguous.

This is where, if you haven't read my Constructive Dismissal series yet, you probably want to do that. This analysis isn't entirely consistent with how constructive dismissal is typically treated, but it's entirely consistent with first principles of repudiation law.

In much of the constructive dismissal case law, the employee has 'options' in the face of a constructive dismissal: Accept the change, reject the change and sue for damages, or insist on compliance with the original terms of the contract.

This, at a glance, looks a bit like a repudiation analysis...but it isn't. A repudiation analysis leads to only two options: Accept the repudiation and treat the contract at an end, and sue for damages flowing from the breach, OR 'affirm' the contract - reject the repudiation, continue to fulfill your obligations under the contract, and sue on the basis of any failure by the other party to hold up its end. In general, behaving in a way that treats the contract as continuing is generally regarded, impliedly, as an affirmation of the terms of the original contract. There's no "acquiesce and be bound to the change as if it was always the agreement" option in the general law of contract.  That one's just a weird feature of constructive dismissal law, that shouldn't be there.

Acquiescence to Constructive Dismissal - A Broken Approach

There are all sorts of doctrinal or contextual reasons to find that a non-breaching party's delay in pursuing a remedy may block a later claim - limitations periods, estoppel, laches, or even an evidentiary inference that maybe it wasn't actually a breach of the contract in the first place.  But where a breach can be established, and there's no equitable or statutory bar on proceeding, there's no basis to say "You can't sue on your rights unless you told the other side not to breach them." 

Then there's the countervailing expectation that employees will 'try out' changed terms of employment, in many circumstances, before rejecting them, so staying in the role for a time before objecting is often seen as a pre-requisite, not a bar, to subsequently asserting constructive dismissal.  Employers arguing that the employee has 'condoned' the change are frequently in for a hard time (though maybe less so after Kosteckyj.)

But aside from being doctrinally flawed in the first place, the 'acquiescence' analysis further complicates an already-labyrinthine framework for constructively dismissed employees to navigate: You're expected to stay in the job long enough to try it out, but not so long to be perceived as having accepted the change. How long is that, you ask? *shrug* (I mean, sure, 10 days, according to Wakeling. 10 days for an still-employed employee to see if the changes work, seek and obtain legal advice on their rights, and decide upon and take a course of action. Ridiculous.)

Thus, my suggestion is that a breach of an employment contract is prima facie actionable - and that claim persists just as long as any other contract claim would, regardless of when the employee first makes a demand, or first commences litigation.  There's no sound doctrinal or policy basis for requiring a constructively dismissed employee to put the employer on notice that its actions breach the contract.

But if the change in terms and conditions of employment is sufficiently fundamental, it should be a repudiation analysis, with the employee being entitled to treat the employment contract as at an end and seek damages accordingly, OR to affirm the contract and sue for damages flowing from the employer's actual breach.  (Note: Affirmation of the contract can be implied by the non-breaching party continuing to act in a manner consistent with continuation of the contract. In other words, on a repudiation analysis, showing up for work after a constructive dismissal isn't an 'acquiescence to the change', but is an implied affirmation of the obligations under the existing contract.)

In the latter choice, the employment contract doesn't come to an end, but rather continues subject to the employee being entitled to assert a claim in respect of the employer's breach.  This doesn't mean quite what it looks like at a glance.

The employer is entitled to terminate an employment contract on sufficient notice, without breaching the contract. Therefore, the employer is also entitled to provide working notice, and to say that "after the expiration of this notice, I'm offering you employment on different terms and conditions". In such a scenario, the employee continuing to work past the end of the notice period may signal acceptance of the new terms.

However, while some case law extrapolates from that to find that a unilateral change can be imposed on reasonable notice, without requiring actual notice of termination - with the result that damages from a unilateral change are capped over the same kind of notice period as from a wrongful dismissal - this turns out to be a dubious proposition.

What's important to note here is that the impact of 'affirmation' is that it cures only the "fundamental" nature of the breach. When one party repudiates a contract, the other party can't affirm the contract and then later rely on the breach to justify its own non-performance of obligations.  But it does not have the effect of curing the breach altogether, or consenting to the breaching conduct, or waiving damages that flow from the breach.

And what's often ignored in the employment law framework is that an employer's non-fundamental breach of the employment contract is still an actionable breach of the employment contract.

The Pay Cut Scenario - A Practical Framework

So, let's start from the top.  I'm entitled to 12 months' notice of termination at common law.  My employer comes to me and tells me "We're cutting your compensation in half, effective immediately."

I have two choices: I can treat the relationship as at an end and, subject to a duty to mitigate, can sue for damages equal to 12 months' full pay in lieu. If I take this option, the contract is at a full stop, and my damages flowing from the breach are essentially fixed.

OR I can affirm the contract by continuing to perform my full obligations under it, and then sue to be topped up for the work I perform. These damages start accruing immediately upon the notice, and continue at least for the 12 month notional notice period - and possibly longer.

If I affirm the contract, then the original terms and conditions of the contract continue to apply through the notional reasonable notice period - despite the fact that they're being breached and I'm accruing damages with each pay cheque.  This includes the obligation to give reasonable notice of termination.  There's no other plausible analysis here.

Also, and this is important, no obligation to mitigate arises when the contract is affirmed. My damages are the amount by which my employer is underpaying me, but my continued performance of my job means that I have no obligation or opportunity to mitigate that loss.  (Factually, there can be a fine line between "I accepted the repudiation but stayed to mitigate" versus "I stayed because I affirmed the contract". Doctrinally, however, these are two VERY distinct frameworks.)

So I have affirmed the contract and I'm entitled to damages for my employer's breach, but I have no intention or obligation to go out and seek replacement employment, because - having affirmed the contract and still being employed by the employer - it's still a contract of indefinite duration, subject to an obligation to provide reasonable notice.

So now, after my affirmation of the contract, I have two things: Firstly, an entitlement to damages in respect of any failure by the employer to pay me my full (prior) wages through the reasonable notice period, and secondly, an entitlement to reasonable notice if the employer decides to terminate the contract.

So if the employer turns around and terminates the employment relationship without notice - whether it's early in the constructive dismissal notice period, as in Kosteckyj, late in the notice period, or long after the original notice period expired, I have a wrongful dismissal action against the employer, separate and apart from any other 'breach of contract' cause of action I may have.

In other words, the right analysis isn't that I get the 'greater of' your mitigated losses on the constructive dismissal (at the unreduced pay), versus full pay in lieu of notice at the reduced pay.  The right analysis is that I get both.

BUT let's step back and ask another question: Why do we assume I'd only be entitled to the pay top-up for 12 months?

That analysis requires us to read into the employment contract an implied right to make fundamental changes on reasonable notice. And there's some case law supporting that. But while it's true that a notice of termination with an offer of employment to be effective at the end of the notice can be functionally very similar to, simply, a notice of change, it operates very differently.

For example, if I give a notice of termination to the employee and a reoffer that I anticipate can be accepted simply by continuing to show up, then one corollary of that is that I have no right to expect the employee to show up on day 1 of the new contract. I have terminated the contract, and the employee owes me no notice of resignation - because they aren't, in fact, resigning.

Indeed, most employers, in most cases, would chaff against a characterization that their change to the contract operates as a termination of the existing contract. In the scenario we're discussing, if I treat the reduction in my compensation as a termination and re-offer of employment, but with inadequate notice, that characterization is deeply disconnected to the reality of what the employer is actually attempting to do.

Yet, doctrinally, the notion that one party has a unilateral right to change the terms and conditions of the contract is absurd, because contracts require - by definition - acceptance.

So, ultimately, my suggestion would be that the correct analytical framework for a case like Kosteckyj is this:

1. The employer breached the contract by reducing her compensation. She is entitled to be topped up through the period she actually worked.
2. She did NOT accept the repudiation (i.e. by taking the position that she was constructively dismissed). The contract, on its original terms, persisted.
3. The employer breached her contract AGAIN when dismissing her without notice, entitling her to full pay in lieu of notice on a scale determined by her (unchanged) contractual compensation - in addition to the top-up for the period she actually worked.

While I acknowledge that this analytical framework is a jump from the status quo of constructive dismissal, the Court of Appeal's disposition of the case, allowing the employer to cut wages, then terminate and provide pay in lieu of notice at only the reduced rate, is wild to me.

*****

Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.

This post does not contain legal advice, but only general legal information.  It does not create a solicitor-client relationship with any readers.  If you have a legal issue or potential issue, please consult a lawyer.