Employee Dismissed for Rejecting Unilateral Changes to her Employment Contract Awarded Damages

The Ontario Court of Appeal has recently upheld an employment law decision of Justice T.J. McEwen of the Ontario Superior Court of Justice in Loyst v. Chatten’s Better Hearing Service, 2013 ONCA 781 (December 20, 2013). The case involved an employee, Dawn Loyst, who entered into a contract of employment with employer, Chatten’s Better Hearing Service (“Chatten’s”), to provide office management services for a period of five years. Under the contract, she would receive bi-weekly pay during the term and 15% ownership in the company at the end of the five year period. Specifically, the agreement stated:

Particulars of the job will be jointly agreed upon by both parties and may vary from time to time but both scheduling and duties will be in the best interest of all parties and never to the detriment of the company’s well being.

The relationship between Loyst and the owner of Chatten’s, Jim Maizis, deteriorated over the next two and a half years. Maizis met with Loyst and told her that she would no longer be the office manager, staff would no longer report to her, her access to clients would be limited, and she would no longer represent Chatten’s in any way, including no further bonus trips or attendance at partnership meetings with their key supplier, Starkey Lab – Canada Co (“Starkey”). Instead, she would be expected to work as Chatten’s accountant. Loyst stated that this proposition was unacceptable, but Maizis responded that if she was not in agreement, she could “pack up her desk.” Loyst did just that, and sued Chatten’s for wrongful dismissal.

The issues considered at trial were:

1. Did Loyst resign from her employment?
2. Alternatively, did Chatten’s have just cause to terminate Loyst?
3. Did Loyst fail to take reasonable steps to mitigate her damages?
4. To what damages was Loyst entitled?

Issue 1:

Did Loyst resign from her employment?

Chatten’s argued that Loyst resigned from her employment instead of being terminated. The Court found that she had not resigned her position as a “resignation must be clear and unequivocal. To be clear and unequivocal, the resignation must objectively reflect an intention to resign, or conduct evidencing such an intention.” It was clear to the Court that after Loyst voiced her disagreement with the changes imposed by Maizis, he terminated her employment.

Issue 2:

Alternatively, did Chatten’s have just cause to terminate Loyst?

Chatten’s alternatively argued that there was just cause for her dismissal. Chatten’s admitted that at the time of the meeting that resulted in the end of Loyst’s employment, it did not have just cause for termination. Chatten’s argued, however, that its termination of Loyst was justified due to information it acquired subsequent to the end of her employment.

The subsequent information obtained was that Loyst had been vocally critical of Maizis to the managing director of Starkey, Jason Toone. In particular, Loyst told Toone that Maizis had promised to become a hearing aid specialist, but left the program prior to completion; that he was often changing his mind with respect to the running of the business; and that he did not attend work regularly. Toone testified that he viewed Loyst’s complaints as insignificant and of having no effect on his relationship with Maizis.

Justice McEwen found that Loyst’s communications about Maizis did not demonstrate wilful disobedience that would result in the destruction of the relationship between an employer and an employee and therefore they did not amount to just cause for termination.

Instead, Justice McEwen decided that Chatten’s repudiated the employment contract with Loyst by changing her job description, which was a fundamental term of the employment contract. He outlined three options an employee has when an employer unilaterally amends a fundamental term:

1. The employee can accept the change expressly or implicitly, in which case the employment will continue consistent with the change;
2. The employee can reject the change and sue for damages arising due to constructive dismissal if the employer continued to insist that the employment continue under the altered terms; or
3. The employee can make it clear that she does not accept the change, and the employer can then dismiss the employee with lawful notice and reoffer employment with the new terms. If the employer does not do this and the employee continues working, the employee is entitled to the terms of the original employment contract.

The judge found that Loyst’s situation fell within the third option above, but Chatten’s had not dismissed Loyst with appropriate notice. Accordingly, the fixed term contract would have to be honoured.

Issue 3:

Did Loyst fail to take reasonable steps to mitigate her damages?

Chatten’s argued that Loyst failed to mitigate her damages when she failed to accept the unilateral changes to her employment. Justice McEwen found that Loyst would not be expected to continue working for mitigation purposes because (1) the unilateral changes involved a modification to her level of pay meaning that it was a demotion and her acceptance of same would be demeaning; and (2) Loyst and Maizis had an acrimonious relationship in the context of a very small work setting. Loyst was found to have properly mitigated her damages by looking for employment elsewhere.

The Ontario Court of Appeal dealt with Chatten’s mitigation argument by simply stating that it was a finding of fact that Loyst had been terminated by Chatten’s, so therefore Chatten’s had removed her ability to mitigate her damages by staying with her employer.

Issue 4:

To what damages was Loyst entitled?

The Court awarded Loyst her remaining salary for the five year contractual term and the value of 15% ownership interest in Chatten’s, reduced by the amount Chatten’s paid to her for severance and the income she made from other employment during the contractual term. The total award at trial was $256,902.93 plus pre-judgment interest, and was upheld on appeal.

Loyst was not awarded damages for the loss of her yearly bonus, bonus trips or attendance at partnership meetings because they were not part of the written employment contract and Justice McEwen did not find that these bonuses formed an implied term of the contract.

PDF copies of the Ontario Superior Court of Justice decision and the Ontario Court of Appeal may be found at the following links:

Loyst v. Chatten’s Better Hearing Service, 2012 ONSC 1653
Loyst v. Chatten’s Better Hearing Service, 2013 ONCA 781