Repudiating the Employment Contract by Suing your Employer

One of my pet peeves in this area of law is the inconsistent treatment of the question of "Can the employment relationship persist during litigation?" This tends to be answered differently depending on who is taking what position. I've written about this issue before.

The most recent case on the matter is a BC decision, Adrain v. Agricom, where the employer had provided 13 months of working notice to an employee with about 30 years of service. She was entitled to reasonable notice in the amount of 24 months - a point that was conceded by trial.

She hired a lawyer to try to negotiate a package, highlighting that she's entitled to more than the 13 months' notice that had been provided, and asking for a commitment to pay the additional notice entitlements. The employer appeared unwilling to enter into negotiations with the employee's lawyer, so a statement of claim was filed.

At the outset, a few observations:

• Her lawyer was right. The employer's notice was inadequate. This is not controversial, and was ultimately conceded by the trial.
• While the BC case law doesn't appear to properly acknowledge this fact, the termination of employment on inadequate notice is, inarguably, a breach of the employee's contract. There's good case law (dealing with limitations periods) suggesting that the breach occurs at the time the inadequate notice is given, and even if that weren't the case, giving clear but inadequate notice would at minimum constitute an 'anticipatory breach'.
• The test for repudiation of a contract is words or conduct 'evincing an intention to no longer be bound by the terms and conditions of the contract'. Given that the terms of the contract in this case required 24 months' of notice under these circumstances, there is a very compelling argument that the employer's provision of inadequate notice should be characterized as a repudiatory breach.
• Nonetheless, if I were in the employer's shoes, I wouldn't be making a firm commitment to pay out the full 24 month notice period. I'd be explicitly telling the lawyer, "Let's talk about this later", because she has an obligation to mitigate her losses. (Of course, if I want her to commit to stay to the end of the 13 month working notice period, that changes things quite a bit.)

The employer responded to the statement of claim by taking the position that she had repudiated the employment relationship by making demands and filing the claim, and therefore he had just cause to dismiss.

The court concluded that the legal demands were appropriate, but that filing the statement of claim was a repudiation by the employee. However, the court noted that this wasn't "just cause". The result was that the employee's action was successful, but because she repudiated the employment relationship a month and a half into the working notice, her employer was only liable for the portion of her damages that arose after the working notice period would have run its course.

Analysis

This is a weird outcome, analytically speaking.

Firstly, the line between 'just cause' and 'repudiation' is, in theory, thin to non-existent. Just cause is an employment-specific doctrine that is fundamentally derived from repudiation theory. There's arguably a bit of daylight between the two concepts to capture things like 'deemed quit' cases where an employee on a medical leave fails to comply with their duty to cooperate in the accommodation process - which is easier to characterize as a repudiation, and doesn't fit quite as cleanly into a 'just cause' analysis. But, in general, the tests for the two concepts - right down to articulations that just cause requires misconduct that "gives rise to the inference that the employee intends no longer to be bound by the contract of service" - are very closely aligned.

So a conclusion that "It's not cause, but it is repudiation" parses some very difficult analytical lines.

Secondly, the outcome doesn't really mesh with that analysis. There is one, and only one, coherent way of getting to an outcome of "You don't get paid for the foregone period of working notice, but you DO get paid for the excess notice period" - and that way is by treating the loss of the initial employment relationship as a failure to mitigate.

This gets into some muddy analytical waters, and there are all sorts of weird nuances at the outer edges, but unless you're treating the employee's continued presence in the workplace as mitigating the losses associated with the inadequate notice period - i.e. that the employee has already incurred compensable losses by virtue of the employer's earlier breach - then treating an employee who repudiates the contract as having remedies that arise from the employer's prior conduct makes no sense at all.

This requires the court to confront two points head-on - neither of which happened in this case: Firstly, that the employer has breached the employment contract, prior to the employee's conduct alleged to constitute a 'repudiation'; and secondly, that the appropriate lens through which to view the employee's conduct is a 'mitigation' lens, which asks about the reasonableness of the employee's conduct. It requires some extraordinary facts for an employer to successfully argue that 'getting fired' is a failure to mitigate - when it's the employer's choice to send the employee home, they're going to need to show that they weren't left with much of a choice. On the right facts, this would be coherent, but these aren't the right facts.

(In fact, I might say that I actually like how the mitigation framework fits here: If your employer provides you with inadequate notice, this is a breach that gives rise at the point of breach to presumptive damages equal to the full notice period, subject to the employee's duty to mitigate, which would usually mean staying for the notice period actually provided. It's a clean analysis, and it also provides agility to address scenarios where the inadequate termination notice is paired with demeaning changes to duties - if the employee left voluntarily, the question would be whether leaving was reasonable, and not whether the test for constructive dismissal was met. However, I'd be very reluctant to conclude that suing on an admitted breach of contract, where the employer refuses to discuss resolution, is 'unreasonable' within the context of this analysis.)

Which brings us to the historical double-standard of what happens when you sue your employer..

The Double Standard

This isn't the first time the BC courts have come to this conclusion in this context - the court here relies on similar cases, which I referenced in my earlier post, like Zaraweh and Suleman, where the employer responded to a statement of claim by firing the person prior to the completion of the working notice period.

Similar conclusions, that 'sending a demand letter is just cause' were reached in Skidd in Ontario, in Kucera in Nunavut, and in Grewal in BC.

If you look at the cases where the employer terminates in response to employee demands, the response is pretty consistently, "Yeah, suing or threatening to sue your employer is not consistent with continuing the employment relationship."

However, when employers have first dismissed or constructively dismissed employees, and subsequently responded to litigation or demands by offering them a (usually temporary) job back, the courts are far more willing to say to employees, "Yes, you should be prepared to work for this employer who is making you sue them for your entitlements, and refusing to do so is a failure to mitigate."

This was the outcome in the SCC case in Evans, and in Ontario cases of Chevalier and Ghanny. And there have been cases where constructively dismissed employees have stayed in the role and sued for their damages - basically, following the directions of the court in these kinds of cases - like Russo.

As I've highlighted before: When an employer breaches the employment contract, the courts tend to tell employees that they should stay in the role despite the breach, even if they're suing for their entitlements; but when employees accuse employers of having breached the contract (even if they're right), the courts tend to conclude that employers don't have to put up with that.

My View

I would tend to come down on the side that litigation is, in almost every instance, inconsistent with the continuation of the employment relationship. (I've written at length in the past on why I see Chevalier as a tragic miscarriage of justice and a deeply flawed analysis, where a constructively dismissed employee was offered their job back only in response to the statement of claim, and the courts - despite acknowledging that it was a dysfunctional employment relationship where the plaintiff was not a fit to the cultural expectations of management - found that he should have taken the job back.)

However, the breach of contract is likely only going to be the commencement of litigation in cases where it wasn't reasonable to commence litigation. If you're suing your employer, and you're wrong, yeah, I'd say that's just cause. And in a fact pattern where the employer has given inadequate notice, I think the right question really is the 'mitigation' question - suing your employer poisons the well, so is that something that a reasonable person would do on these facts?

In this case, I'd argue that the answer is 'yes' - the employee may have moved a bit quickly, but not unduly so, and where the working notice period is woefully deficient and the employer seems unwilling to negotiate legal entitlements, telling the employee to wait until the end of the notice period to pursue a vested cause of action is...not appropriate.

However, if the employer had come back with a reasoned response acknowledging that there's a conversation to be had, but in light of the employee's duty to mitigate and the 13 month period where she's continuing to be paid it makes more sense to wait until closer to the end of the working notice period to have a conversation about the demand, then I'd be much more sympathetic to the employer. I think that's a reasonable and practical approach to a case like that, and for the employee to go guns-blazing in response to that would be unreasonably aggressive.

I take the same approach to Kucera-type cases: Lawyers need to be careful when sending demand letters into ongoing employment relationships, but as long as (a) any factual allegations in the letter can be supported; (b) the letter isn't unnecessarily disrespectful; and (c) the demand isn't outrageous or legally frivolous, my view is that an employer needs to look at those letters seriously.

Walking a Fine Line

Employee-side lawyers would be wise to remember, however, that when the client is still an employee, the employee remains subject to implied and express terms and conditions of the employment relationship, and they can be held accountable for the correspondence they authorize their lawyers to send on their behalf. In other words, if the lawyer's letter is insolent, insubordinate, or makes unsupported allegations against management, that can amount to misconduct on the employee's part. And here's the real hitch: Your client is relying on your advice as to what kind of letter you should send, so if your employee does get fired for cause because of a letter that you sent, then unless you've done some pretty solid CYA work making the client fully aware of the risks associated with crafting your letter in a particular way, that becomes a call to your E&O insurer.

This requires a bit of a shift in mindset from where plaintiff-side lawyers usually land; it's common to be aggressive, to make allegations that may or may not be capable of being substantiated, and even to throw in bad faith allegations, which may be pretty tenuous, as a way of supporting an ask for tax-favourable 'general damages' in a settlement. (When I was on the plaintiff side, I generally found that getting management's back up was a poor way to support my client's interests, but there's nothing really inappropriate about it after the employment relationship has ended.) But when the employment relationship is still going on, a lawyer's letter that makes allegations of management misconduct...you're rolling the dice. Even on my relatively employee-friendly take as laid out throughout this post, my takeaway would be, "You'd best be right."

So where I come down on the question of employee demands - and I think I'm more-or-less on the same page as most of the case law here - is that a lawyer's demand letter doesn't repudiate the employment relationship provided that:

1. There's a reasonable basis for the demand;
2. The demand doesn't make frivolous or unsustainable allegations of employer wrongdoing; and
3. The demand is advanced in a way that does not unreasonably create or escalate conflict.

And, as a similar caution to potential litigants looking to hire a lawyer, I'll highlight that your expectations of lawyers based on what you've seen on TV...should be moderated. While there are some 'big personalities' in law, guys who can get in a fistfight when they're the only person in the room, people who will hammer on the table to try to intimidate and shock, that's not most lawyers, and it's not generally the best lawyers - at least, not for every file. When I was in private practice, I found that the best resolutions for both sides were usually achieved when good lawyers on both sides came together to have a serious and productive discussion.

So clients need to stop expecting their lawyer to act like Saul Goodman, and lawyers need to stop living up to that expectation. I'd say that's true generally, but it's absolutely true in contexts of an ongoing employment relationship.

The truth is that you'll find differing opinions on whether lawyers should ever communicate directly with their client's current employer - the thinking being that, by the time an employee has a lawyer writing to their employer, that employment relationship has already hit the iceberg. In my years in private practice, it was extraordinary for me to communicate directly with a client's current employer, and the employment relationship never lasted particularly long afterward. (With some caution, I was able to avoid making things worse, but the need for my involvement was a pretty clear sign that the relationship was broken beyond repair.)

Historically, I've only really found that a lawyer's letter might do more good than harm is where two criteria are met: (1) the employer has gone so clearly off-side that, when the letter is escalated to the employer's lawyer, it's guaranteed to garner a response of, "Yep, you done messed up"; and (2) the letter offers a constructive solution that refrains from a more formal pursuit of remedies. Something like: "Your unpaid suspension of my client is a textbook constructive dismissal, and my client could take the position that he has been constructively dismissed, but he would prefer to attempt to resolve this in a way that restores the relationship..." or "Your removal of responsibilities from my client as a result of her disclosing her pregnancy is discriminatory in breach of human rights legislation, and my client would be within her rights to seek a remedy from the Human Rights Commission; however, if you restore my client to her previous responsibilities, she will consider the matter resolved."

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The author is an in-house lawyer in Alberta. Views are the author's alone. This article does not contain legal advice, but general legal information. If you have a legal issue, consult a lawyer.