By David Doorey, York University
I’ve stepped away from this blog for a bit to catch up on a backlog of work, but I’m motivated to return from my hiatus briefly to raise an ongoing question I have about constructive dismissal law. Maybe people smarter than me can solve the mystery.
I’m updating my text The Law of Work for the third edition and in the process I review hundreds of cases from the past five years. I stumbled on a recent decision of the Alberta Court of Appeal that raised a question I’ve had for years about the relationship between condonation of a unilateral amendment made by an employer in constructive dismissal law and the required mutual consideration to support the amendment in contract law.
My question in these cases is: Does Condonation Cure a Lack of Mutual Consideration? I have always thought not. Yet I occasionally find cases in which the courts enforce amended contract terms on the basis that the employee “condoned” the amendment, even though the employee received no fresh consideration. It’s as if the courts apply either the doctrine of condonation or the doctrine of mutual consideration, but not both, that they are mutually exclusive.
The latest case is called Kosteckyj v Paramount Resources Ltd. Facts are simple. Employer guts the employee’s compensation package in a manner amounting in total to a 20% reduction. Very clearly this is a substantial reduction in compensation and a fundamental breach of contract that the employee can treat as a constructive dismissal if she so chooses.
The employee doesn’t immediately object to the change, but she is terminated 25 days later. She then sues and argues the pay cut was a constructive dismissal and that she is entitled to damages for wrongful dismissal based on her compensation level before the unilateral and wrongful cut in her pay. She wins at trial, with the judge ruling 9 months is reasonable notice. The employer appeals.
Court of Appeal Decision
The Court of Appeal upholds the judge’s finding that the pay cut was a substantial breach of contract that could ground a constructive dismissal and the 9 months’ reasonable notice for the termination is fine. However, the Court rules that the employee had condoned the employer’s breach by not expressly rejecting or quitting quick enough. The Court rules that 25 days was too long to wait and that “no more than ten business days” after the employer announced the pay cut was permitted for the employee to object. Because the employee had continued to work for the 25 days without expressly objecting to the pay cut, the Court ruled she had condoned the breach. Since she had condoned the breach, she cannot argue constructive dismissal. However, since she was fired anyways a few weeks later, she is entitled to damages for wrongful dismissal and those damages are calculated based on the revised “gutted” compensation terms. The entire point of the argument whether this was constructive dismissal was to determine which compensation level applies: the higher level from before the employer breached the contract by gutting the pay, or the lower level based on the employer’s unilateral amendment.
I mention in passing that 10 days to get legal advice and expressly object to the pay cut seems unusually short by Canadian employment law standards. However, I have two more fundamental objections to the Court of Appeal’s ruling in this case.
Alberta Court of Appeal Reverses Onus to Prove Condonation
Firstly, the Court states that the onus is on the employee to demonstrate that she DID NOT CONDONE the change:
“Ms. Kosteckyj bore the onus to prove that she declined to accept within a reasonable time period the new terms of employment and that the change was unilateral in nature.” [para. 57]
This ruling conflicts with my understanding of the test, which is stated in other decisions, including most recently in Pham v. Qualified Metal Fabricators, where the Ontario Court of Appeal stated, citing another OCA decision (McGuinty v. 1845035 Ontario Inc): “Condonation is a defence to a claim of constructive dismissal and the burden is on the employer to establish it“.
As authority for its odd decision on this point, in a footnote the Alberta Court quotes from Potter to the effect that the onus is on the employee to demonstrate that the employer committed a fundamental breach. Sure, but that has nothing to do with the onus to prove condonation. In the same footnote, the Court observes that the Ontario Court of Appeal has ruled otherwise, noting simply, “But see McGuinty v. 1845035 Ontario Inc) ….”, without any attempt to explain the different approach they take.
So do we now have a different test for establishing condonation in Alberta than in Ontario? Appears so, and Alberta’s is wrong. How can the onus be on the employee to make out the employer’s defence of condonation? Bizarre.
Where is the Damn Peppercorn? (Or, Does Condonation Magically Eliminate the Need for Mutual Consideration?)
My second concern about this Alberta decision is a long-standing one that pops up every now and then. The facts are that the employer unilaterally gutted the employee’s compensation by 20 percent. Also, and pay attention here, the employee received nothing new of benefit in exchange for this pay cut. The pay cut benefits the employer but, to use legal terms, the employee received no fresh consideration in the exchange. She just kept working under the same conditions, except for less money. And then she was terminated a few weeks later.
Everyone agrees that the employer committed a fundamental breach of contract. However, the Court of Appeal ruled that the employee “condoned” the breach and therefore could not win her constructive dismissal case. Now back to first contract principles.
As noted above, in employment law, condonation is a defence to a constructive dismissal lawsuit. An employee who condones a breach cannot rely on the breach as a basis for constructive dismissal. Okay, fine. BUT does condonation also magically cure a unilateral amendment to the contract that is unsupported by the mutual consideration?
There are loads of cases striking down a purported amendment made in the past on the basis that the employee received no fresh consideration, even if the employee condoned (accepts, did not object to) the amendment and keeps working. Francis v CIBC is one we use to teach this stuff, but there’s many others. Recall in Francis that the employee signed a written amendment to the contract that switched the requirement to provide “reasonable notice” of termination to a much more employer-friendly requirement to provide a maximum of 3 months’ notice. Francis signed the amendment and did not object. He just kept working. However, when years later the employer attempted to rely on the written amended notice clause, the Court of Appeal ruled the clause was unenforceable because Francis had received no fresh consideration when he signed it a decade earlier. Acquiescence to the change did not cure the lack of mutual consideration.
The fact that Francis “condoned” the amendment to the notice clause by never objecting to it is relevant to his entitlement to argue that the amendment amounted to a constructive dismissal. He cannot make that argument. But that doesn’t change the fact that the amendment was unsupported by mutual consideration and is therefore unenforceable even years later.
The question for me then is how the Alberta Court of Appeal ends up assessing damages based on the employer’s unilaterally imposed, amended lower compensation rate? The employee received no fresh consideration to support that pay cut, so how is that unilateral pay cut enforceable? “Condonation” might prevent a constructive dismissal lawsuit based on the pay cut alone, but how does it magically cure the complete absence of mutual consideration to support the amendment which is entirely one-sided in favour of the employer?
Ultimately, the question boils down to this: How can we reconcile the many cases ruling that amendments introduced by employers for their own benefit and unsupported by fresh consideration to the employee are unenforceable, with cases enforcing amendments unsupported by fresh consideration on the basis of the doctrine of “condonation” in constructive dismissal law?