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Kafka v. Allstate: Mass Constructive Dismissals Not Appropriate for Class Actions

Class actions can be a powerful tool for workers, since it can help overcome a serious access to justice problem associated with the employment relationship.  Most employees lack the financial resources to retain lawyers to sue their employers for breach of
contract.  A Class Action can allow many employees to come together in one lawsuit against the employer and allow them to share the legal costs.

However, the Class Action rules do not favour employee lawsuits against their employers.  A Court must “certify” a class action–grant permission for it to proceed.  In deciding on certification, an Ontario court applies tests set out in the Class Proceedings Act.   Section 5(1) of that Act says that a case shall be certified if, among other things, the claims of multiple people “raise common issues”.  Section 1 defines a “common issue” as issues of fact or law that are common “but not necessarily identical”.

Last week, the Ontario Superior Court of Justice issued a decision in a case called Kafka v. Allstate that considers this language.  Its a long decision, but I will focus on one small part.  In a nutshell,  over 100 insurance agents were given notice that in two years, their  jobs would undergo a change, including to the manner in which their compensation would be calculated.   The employees quit, and in this action were alleging that the announcement of the change amounted to a constructive dismissal.  They are not claiming “reasonable notice” under their contracts.  Instead, they are seeking termination and severance pay under the Employment Standards Act (and some other damages we needn’t worry about).

In order to bring the action as a “class action”, the group needs to prove to the court that there is a common issue of fact or law.  They argued 8 different common issues.  The court rejected all of them, so the class action was not certified.

I confess that the case confuses me.  Perhaps I need to read it again more closely.  Maybe readers familiar with the case can help me out. Here’s what confuses me.  The central argument of the plaintiffs was that the employer committed a constructive dismissal of the agents when it told them that their terms and conditions would be changed in two years.   They argued that whether an employer can unilaterally change the terms of the employees’ contract by giving notice of the change is a common question of law.  I’d have thought that was a pretty good argument.  That is exactly what Wronko v. Western Inventory was about, wasn’t it, and the Court there ruled that in fact an employer cannot change terms of a contract without an employee’s consent simply by giving notice of the change.

Yet the judge here rejects the argument that this was a common issue of law.  She finds that this is really just a claim about how much “reasonable notice” should have been granted to each of the employees.    Since the assessment of “reasonable notice” requires an individual assessment of each employee’s circumstances, she rules that the question of whether Allstate can make a substantial change to employment contracts by giving 2 years reasonable notice is not a common issue.

Perhaps I need to read the factum or hear the argument, but this is a confusing ruling to me.  As I read the issue posed by the plaintiffs, the “common issue” wasn’t how much reasonable notice needed to be given to the employees in order for the employer to make the changes.  The common  issue was whether an employer can make unilateral changes to employment contracts simply by giving notice of the changes.   The former is an individual question requiring assessment of personalized facts.  The latter is a common issue of law, the same one discussed in Wronko.

The judge’s approach is correct only if what happened is that the employer gave the employees two years’ notice that it was terminating the employment contract,  after which it would offer new contracts on the revised terms.  If that is what happened, then the issue of how much notice to terminate the employment contracts of each employee becomes a relevant factor.  However, if the employer gave the employees two years’ notice of the termination of the contracts, then I don’t see how a constructive dismissal could arise at all.  The employer hasn’t actually made a change to the contract.  Rather it has terminated the contract entirely, and then rehired the agents under new terms.

The fact that we are talking about constructive dismissal here suggest to me that the employer gave notice that it would unilaterally change the terms of the employment contracts in two years, just like the employer did in Wronko.  (Does anyone know? The decision is unclear because the judge goes back and forth between saying the employer gave 2 years “working notice” and 2 years “notice of the change”).   If that is what the employer did, then it seems to me that the judge is wrong in her assessment.  The common legal issue arises:  Can an employer unilaterally change terms of a contract by giving notice of the change? The need to assess “reasonable notice” for each employee doesn’t arise at all if the employer never gave notice to terminate the contract in its entirety.  An employer can’t give “reasonable notice” of a unilateral change to contract terms. That is a point of law.

The Court also rules that whether the changes were “substantial”, and therefore sufficient to constitute constructive dismissal, would depend on how the changes effected each individual, considering their employment contracts and other factors.   This is true, to a point.  The Supreme Court told us in Farber v. Royal Trust  that what matters is”whether a reasonable person”   would have considered the proposed changes to the employment contract to be a substantial change as assessed at the moment the notice of the changes are given.  Therefore, it is not necessary (or permitted) to enter evidence about how the new model works out for individual employees in practice after the changes come into effect.  But it is necessary to assess whether the proposed changes would reasonably have been considered substantial changes.  This assessment could depend on the individual situation of the agents.

Interesting and complex case.  It seems to confirm that assessing reasonable notice for multiple employees will never be considered to be a  ”common” issue of law or fact, and that  situations of “mass constructive dismissals” are unlikely to ever satisfy the commonality component for class action certification.


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