In McGuinty v. 1845035 Ontario Inc. (McGuinty Funeral Home), 2020 ONCA 816 (McGuinty), the Court of Appeal for Ontario upheld the Ontario Superior Court’s decision to award an employee one of the highest damage awards ever granted in Canada for constructive dismissal ($1,270,000). 

Background

The employee worked in his family’s funeral home (Home) for 30 years.  When he was 55, the employee sold the Home to the appellant company.  The parties entered into a Transitional Consulting Services Agreement (TCSA), pursuant to which the employee would work as General Manager for a fixed term of 10 years.  The TCSA included commissions and a vehicle and fuel allowance.  The TCSA did not contain a provision addressing its early termination, but did contain a non-competition clause that barred the employee from working in the funeral home business for 10 years. 

Conflict between the parties developed almost immediately after the employee began his employment.  The company’s co-owner required the employee to complete time sheets and asked the employee’s subordinate to track the employee’s time in the office.  The co-owner also advised the employee that he could not use the company vehicle for personal use, and failed to pay commissions.  After the employee entered the Home on a weekend to remove some furniture, the co-owner alleged that the employee threw out Home files without authorization.  The owners changed the locks on the Home without notifying the employee.  The employee then commenced a medical leave and sent a note stating:  “I wish to make clear I am on medical leave and am not stepping down from my position as general manager at McGuinty Funeral Home.” 

When he attended a funeral at the Home while on medical leave, he noticed his desk was moved to the basement, and his photograph had been removed. Two weeks later, he sent an email to the co-owner indicating he wanted to clear up a few matters “so we can move forward” and raised, among other things, the outstanding commissions.  The employee never returned to work.  Two years later, he issued a Statement of Claim alleging constructive dismissal. 

Decision of the Trial Judge  

The leading case on constructive dismissal is the decision of the Supreme Court of Canada in Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10, which held that constructive dismissal can be established by the employer’s breach of an essential term of the employment contract, or a course of conduct by the employer that establishes that it no longer intends to be bound by the employment contract.  The trial judge applied the second branch of the Potter test, concluding that: (a) the appellant engaged in a course of conduct that would cause a reasonable person in the employee’s position to conclude that the appellant no longer considered itself bound by the TCSA; and (b) the employee (i) accepted this repudiation; and (ii) was constructively dismissed.  The trial judge rejected the appellant’s argument that the employee’s extended sick leave amounted to his condonation of the appellant’s conduct, emphasizing that condonation requires acceptance of the new situation, inferred from a willingness to remain in the altered position.  The trial judge noted that the employee did not remain in the position; in fact, he could not return to work due to depression and anxiety caused by the appellant’s conduct.  The employee was awarded $1.27 million in damages for the amounts he would have earned for the balance of the term of the TCSA. 

Decision of the Court of Appeal

The appellant appealed the decision of the trial judge, arguing once again that the employee condoned its conduct and was not entitled to claim constructive dismissal. 

The Ontario Court of Appeal (OCA) noted that condonation must occur “within a reasonable time,” as it had established in Persaud v. Telus Corporation, 2017 ONCA 479, and stated that this is a fact-specific determination made by the trial judge, whose finding is entitled to deference.  The OCA emphasized:

Care must be taken before concluding that an employee has given up his or her right to sue for constructive dismissal, and employees’ unique personal circumstances must be taken into account. For example, an employee’s health, including his or her mental health, may be a relevant consideration in determining whether his or her conduct implies condonation. Given the wide variety of personal circumstances, it is not surprising to find cases in which employees have been found not to have condoned breaches or repudiation of their contracts of employment despite having continued to work even for relatively extended periods of time. Each case turns on its facts. (para. 26)

The OCA stated that the employee’s note clarifying that he was on medical leave and not stepping down from his position, together with the subsequent email indicating his desire to resolve his concerns, did not require a conclusion that the employee condoned the appellant’s conduct. 

The court recognized that the issue in this case was delay: the employee did not purport to accept the repudiation of the contract until two years after he took medical leave when he issued his statement of claim.  While the OCA acknowledged that the time taken by the employee to make his election was lengthy, it referred to the difficulty in concluding that condonation has occurred, “where the employee has been unable to work because of the very conduct that establishes the constructive dismissal.”  (para. 31) 

In the OCA’s view, the employee’s delay in making the election must be understood in the context of his inability to return to work due to depression and anxiety caused by the appellant, as well as in the context of the “particular circumstances of his employment,” including his age, his guarantee under the TCSA of employment until his retirement, his family’s name on the Home, and the non-competition clause in the TCSA that barred him until retirement age from working in his community in the only profession he knew.  Taking all of these circumstances into consideration, the OCA did not interfere with the trial judge’s finding that the employee, “did not return to work, could not return to work, and did not condone the appellant’s actions.” (para. 35)  Constructive dismissal had occurred.   

Bottom Line for Employers

McGuinty puts employers on notice that in considering whether an employee has condoned a constructive dismissal, a court will analyze all contextual factors and consider the unique personal circumstances of the employee, including whether their health (physical or mental) prevented them from returning to work.  If, for example, an employee is on medical leave because they became depressed and anxious due to their employer’s conduct in constructively dismissing them, this will not necessarily create an inference that the employee condoned the changes made to the terms of their employment.  Even employees who continue to work “for relatively extended periods of time” after being constructively dismissed may not be found to have condoned their constructive dismissal if their personal circumstances allow such a conclusion to be drawn.  Accordingly, employers should avoid conduct that may result in a claim of constructive dismissal because, as was the case in McGuinty, such conduct may result in a significant damage award to the employee. 

McGuinty also emphasizes the financial risk facing employers that enter into fixed-term contracts that do not contain well-drafted termination clauses that meet minimum employment standards.  Employers are encouraged to seek the guidance of experienced employment lawyers when entering into such contracts.