Employee Awarded Over $1 Million in Damages for Constructive Dismissal Under Fixed-Term Agreement

In a recent Ontario case, an employee who was constructively dismissed under a fixed-term agreement was awarded over a million dollars in damages.

What Happened?

The employee was a third generation owner of a funeral home when, in 2012, he agreed to sell his shares to the employer corporation, a company controlled by two brothers. 

It was a term of the share purchase agreement that the employee would enter into a transitional consulting services agreement (the “agreement”) by which he would continue in the employ of the funeral home for a fixed-term of ten years. The agreement provided that the employee would work as general manager of the funeral home and be paid $100,000 per year with a salary review on an annual basis to reflect cost of living increases, as well as sales commissions.

However, not long after the transfer of ownership, unhappy differences arose between the employee and the brothers. Within 11 months, the employee had gone on medical leave due to workplace stress he said was induced largely by the actions of one of the brothers. 

Among the main issues, were, firstly, the hours the employee was expected to be spending on funeral-related work as opposed to customer relations. Secondly, was the use of the company vehicle and gas card for personal purposes. The third issue was the length of time over which the employee would be paid the commission of 5% on pre-paid funerals. Fourthly, at issue was whether the commission of 65% of the marketing allowance was only for in-house pre-arranged funeral packages specifically arranged by the employee or for all in-house packages, regardless of who arranged them.

After his leave, he was unable to return to work and claimed to have been constructively dismissed. He sought damages for breach of the agreement, intentional infliction of mental suffering and discrimination prohibited by the Ontario Human Rights Code. Essentially, the employee claimed that the brothers’ conduct was designed to cause him to leave his employment, and that much of the conduct took place when he was on leave for stress-related illness that the brothers knew would be exacerbated by their conduct.

The brothers claimed that none of their conduct was the cause of the employee leaving his employment. They stated that the employee found himself ill-suited to the role of employee and suffered from seller’s remorse. They argued that the employee orchestrated much of the discord in an effort to induce them to breach the agreement and fire him in hopes that he would reap the benefits of the contract without having to work.

The Decision

After reviewing the behaviour of both parties, the court concluded that neither the brothers nor the employee were blameless for the falling out that occurred. However, the court found that over the course of several months before the employee’s leave, one of the brothers:

(1) Improperly terminated the employee’s use of the company vehicle; 

(2) Without notice to the employee, recruited an employee who was subordinate to him to track his time at the funeral home; 

(3) Did not pay the employee commissions to which he was rightfully entitled; 

(4) Removed the employee’s photograph from the funeral home; and 

(5) Without notice to the employee and without seeking any explanation from him, changed the locks to the funeral home. 

The court found that all these actions amounted to a course of conduct which, in light of all the circumstances, would lead a reasonable person in the employee’s position to conclude that the brothers no longer intended to be bound by the terms of the agreement. As a result, the court found that the employee had been constructively dismissed.

The court, however, dismissed the employee’s claim of intentional infliction of mental suffering and discrimination prohibited by the OntarioHuman Rights Code.

Damages 

When assessing damages, the court stated:

“In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation […]. Accordingly, the [employee] is entitled to the compensation and benefits he would have received had the contract been honoured. […] It is appropriate to […] simply calculate the loss per year and multiply it by the 9 years remaining on the contract when the [employee] ceased work.”

After reviewing the loss of salary, which came to $100,000 per year for nine years, or $900,000, and other lost benefits over the course of nine years under the agreement, the court awarded damages to the employee in the amount of just over $1,274,000.

Get Advice

At Campbell Bader LLP, our Mississauga employment lawyers have been representing non-unionized employees in workplace disputes since 1999. We know that such disputes can be very stressful and can get emotional quickly. We seek to simplify the law so that you understand your options and make informed decisions. We leverage our extensive experience advising employers to provide insightful guidance to employees who are facing challenging circumstances at work. We work hard to protect you.

If you have questions about unfair practices in the workplace, wrongful dismissal, or any other employment matter, contact the Mississauga employment lawyers at Campbell Bader LLP. Our knowledgeable employment lawyers can counsel you on your rights, advise you on your options, and help you create a plan for moving forward. We represent employees in Mississauga and areas west of Toronto. Contact us online or at 905-828-2247 to learn how we can help.