A recent Ontario Superior Court of Justice (“ONSC”) decision serves as an important reminder that constructive dismissal can arise not only from significant changes to an employee’s compensation or duties, but also from a course of conduct that creates a hostile working environment.

In Kennedy v. Kingston Area Taxi Licensing Commission[Kennedy], the ONSC found that a long-service employee was constructively dismissed following a significant deterioration in his treatment and working environment after a change in Board leadership. The Court found that the employer subjected the employee to unjustified criticism and hostility, failed to implement recommendations made by its own human resources consultant to improve the working relationship, and attempted to impose a new employment agreement substantially limiting the employee’s termination entitlements.

The Court awarded the employee pay in lieu of a 24-month notice period, as well as $25,000 in aggravated damages arising from the employer’s bad faith in the manner of dismissal.

Background

The employee worked for the Kingston Area Taxi Licensing Commission (“KATLC”) for approximately 19 years, most recently in the roles of General Manager, Taxi Inspector and Municipal Enforcement Officer. Until a change in Board leadership in December 2019, he received positive feedback and exercised significant autonomy over KATLC’s day-to-day operations.

Following the change in Board leadership, the employee’s treatment changed significantly. He was subjected to increased criticism and oversight, including public criticism and belittlement at Board meetings. At trial, the employee testified that there appeared to be an effort by certain Board members to remove him from his position.

The employee raised concerns about harassment. KATLC retained an external human resources consultant to investigate. Although the consultant did not find that the employee had been harassed, she raised concerns about the Board chair’s communication style, which she described as “aggressive, inappropriate and disrespectful”, and recommended several measures intended to improve the working relationship.

KATLC did not implement the recommendations or communicate them to the employee.

As the relationship continued to deteriorate, KATLC asked the employee to sign a new employment agreement that would limit his termination entitlements to the minimum requirements of the Employment Standards Act (“ESA”). The employee refused to sign the agreement on legal advice. KATLC then added an additional vacation day to the offer and, when the employee again declined, offered an additional week of notice as its “final offer”.

The employee ultimately went on stress leave in April 2021. Shortly afterward, KATLC retrieved his work equipment and vehicle and posted his position as available while he remained on medical leave.

The employee commenced an action alleging constructive dismissal. KATLC maintained that he had voluntarily abandoned his employment and raised a number of allegations regarding his performance and conduct in support of its position.

Decision

The ONSC found that the employee had been constructively dismissed.

The Court accepted the employee’s evidence that the way he was treated changed abruptly following the change in Board leadership. In particular, the Court found that he had been subjected to public criticism, belittlement and humiliation without any rational basis and characterized one Board meeting as an “ambush”.

The Court also rejected KATLC’s allegations regarding the employee’s conduct and performance, which included allegations of “time theft”, unauthorized decision-making, and mishandling of confidential information. The Court found that the allegations revealed more about the Board’s bias against the employee and its determination to replace him than any deficiencies in his work.

KATLC’s response to the employee’s workplace concerns also factored into the Court’s analysis. Although KATLC retained an external HR consultant, it did not implement any of the consultant’s recommendations. The Court found that this, together with KATLC’s actions after the employee commenced stress leave, demonstrated that KATLC was not interested in supporting the employee or improving the working environment.

The ONSC was also critical of KATLC’s efforts to require the employee to sign a new employment agreement substantially limiting his termination entitlements. The Court found that KATLC acted in bad faith by insisting on a new “mandatory” employment agreement that would allow it to terminate the employee without cause for little more than his minimum statutory entitlements. The Court found that KATLC’s conduct breached its implied obligation to treat the employee with respect and decency.

Taken together, the Court found that KATLC’s conduct amounted to an unjustified repudiation of the employment relationship and therefore constituted constructive dismissal.

The Employee was Entitled to 24 Months’ Reasonable Notice

Having found that the employee was constructively dismissed, the ONSC assessed the appropriate period of reasonable notice under common law.

At the time of dismissal, the employee was 61 years old, had approximately 19 years of service, and held a unique position as General Manager, Taxi Inspector and Municipal Enforcement Officer.

Applying the Bardal factors, the Court awarded the employee pay in lieu of a 24-month notice period, including the value of his benefits over the notice period, less his mitigation earnings.

Bad-Faith Conduct Resulted in Aggravated Damages

The ONSC also found that KATLC acted in bad faith in the manner of dismissal.

The Court relied in part on KATLC’s efforts to impose the new employment agreement, as well as other tactics that one of KATLC’s own witnesses described as “strong armish”. The Court accepted that KATLC’s conduct caused the employee stress and anxiety, which required medication and from which he had not fully recovered by the time of trial.

The employee was therefore awarded $25,000 in aggravated damages.

Key Takeaways for Employers

• A Hostile Work Environment Can Result in Constructive Dismissal: Constructive dismissal is not limited to significant changes to compensation, duties or other express terms of employment. Where an employer’s cumulative conduct creates a hostile working environment that fundamentally undermines the employment relationship, constructive dismissal may result. Employers should ensure that performance management and other workplace concerns are addressed professionally, objectively and through appropriate processes. In particular, criticism or increased oversight should have a legitimate basis and should not be carried out in a manner that unnecessarily belittles or humiliates an employee.
• Employers Should Meaningfully Respond to Workplace Investigation Findings: An investigation that does not result in a finding of harassment may still identify conduct or workplace issues that require follow-up. While employers are not necessarily required to implement every recommendation made by an investigator or external consultant, they should carefully review the findings, consider what steps are appropriate in the circumstances, and document the rationale for any decisions made. Failing to meaningfully address concerns identified through an investigation may allow workplace issues to continue and create additional legal risk.
• Address Employee Conduct and Performance Issues Promptly and Fairly: Where employers have legitimate concerns regarding an employee’s conduct or performance, those concerns should be raised and addressed as they arise. Clear expectations, appropriate documentation and a fair investigation of alleged misconduct can help ensure that subsequent disciplinary or employment decisions are supported by reliable evidence and are capable of being defended if challenged. Employers should be particularly cautious about relying on previously undocumented or unsupported allegations after the employment relationship has deteriorated, as doing so may undermine rather than strengthen the employer’s position.
• Exercise Care When Introducing New Employment Agreements: Employers should periodically review and update employment agreements, including termination provisions, to keep them current, enforceable, and aligned with business needs. However, how and when a new agreement is introduced matters, particularly where the employment relationship is already strained. Employers seeking to introduce new agreements to existing employees should ensure that adequate consideration is provided and that contractual changes are not presented in a manner that could be viewed as coercive or in bad faith. Where an employer is seeking to significantly limit a long-service employee’s termination entitlements, particular care should be taken with both the timing of the proposed agreement and the manner in which it is presented.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.