Internal Reorganizations And Constructive Dismissal: Minimizing Risk

by Dentons
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While not making new law, the recent Divisional Court decision in Ghanny v. 498326 Ontario Limited 2013 ONSC 4057 provides a useful reminder of the steps an employer should take to minimize the risk of constructive dismissal when engaging in a good faith reorganization that impacts on the terms and conditions of its employees’ employment.

The facts of the case are quite simple. The employee, Mr. Ghanny, had been employed with Downtown Toyota for 18 years as Service Manager, earning $80,000 per year. The owner of Downtown Toyota also owned Downtown Suzuki. The owner advised Mr. Ghanny in June 2008 that his position was being eliminated at the end of the month, but that Mr. Ghanny would be relocated to Downtown Suzuki, which was just a few blocks away. Mr. Ghanny was advised that he would continue as Parts and Service Manager at Downtown Suzuki, and would earn the same $80,000 compensation package.

Mr. Ghanny refused the position at Downtown Suzuki for two reasons. First, he believed that his 18 years of service would not be recognized at the new location, and second, he was concerned that the position at Downtown Suzuki was uncertain, because the owner had also told him that in the near future it was likely that the Suzuki location would either be converted into a Lexus dealership, relocated, sold or possibly closed. As such, Mr. Ghanny felt that the position at Downtown Suzuki would only be temporary.

There was a conflict in the evidence as to whether Mr. Ghanny was told that he would lose his seniority. The employer gave evidence that it highly valued Mr. Ghanny, and legitimately wanted him to accept the position at Downtown Suzuki. To that end, the employer’s evidence was that it told Mr. Ghanny that his years of service would be transferred to Downtown Suzuki, and further that Mr. Ghanny was told that whatever the future of Downtown Suzuki, his job was not at risk.

On the issue of recognition of service, the trial judge preferred the evidence of the employer over the evidence of the employee. The Court held that it was unlikely that the employer, who was attempting to convince a valued employee to accept a new role, would have told him that his service was being eliminated. It found that it was more likely that the employer told him that although his service at Downtown Toyota was being eliminated, his service would be transferred to Downtown Suzuki.

The Court found that one month’s notice of the change was insufficient, and that if Mr. Ghanny’s action had been successful, 14 months would have been reasonable notice. That said, relying heavily on the Supreme Court of Canada decision in Evans v. Teamsters Local 31, [2008] 1 S.C.R. 661, the trial judge dismissed the action, finding that it was unreasonable of Mr. Ghanny to refuse to accept the position at Downtown Suzuki. The Court stressed a number of factors in coming to this conclusion:

  1. Although not an identical job, the position at Downtown Suzuki was the same type of job, and as such the new position would not have been demeaning or insulting.
  2. The employer legitimately wanted to retain the employee, and as such this was not a veiled attempt to get rid of him.
  3. The employee was given assurances that his overall compensation would remain the same.
  4. The employee was told that although there was a risk that the dealership might close, the employer would find a place for him within its organization.

Key to the Court’s conclusion was the fact that with the exception of the issue of service recognition, the terms of the new position were clearly outlined by the employer. As such, there was no ambiguity as to the nature of the position or the compensation the employee would receive. Given that the new position was comparable to the previous position, Mr. Ghanny failed to mitigate his damages by refusing to accept the new role, and was not entitled to pay in lieu of notice. On appeal, in a brief endorsement, the Divisional Court determined that the trial judge had correctly applied the law, and upheld the decision.

For employers, this case reinforces that legitimate organizational changes can be implemented without triggering constructive dismissal where the new position and compensation are comparable to the previous role. When proceeding with organizational change that impacts terms and conditions of employment, this case highlights the importance of the following:

  1. Give as much notice of the change as possible.
  2. Be clear with the employee as to: (i) the nature of the new position; (ii) any revised compensation; and (iii) how the employee’s service will be recognized. In Ghanny, it appears that one of the reasons the employee rejected the change was a misunderstanding as to whether his service at the new location would be recognized. Had the employer been clear in its offer (for example, by sending an e-mail or other written communication confirming the terms of its offer), a significant issue at trial could have been avoided.
  3. Where appropriate, make it very clear to the employee that this is an organizational change, and that he/she is a valued employee whom the employer wishes to retain.
  4. If the employee rejects the change, make efforts to find out why, and if possible address the concerns, or at a minimum explain why the employer needs to implement the aspect of the change that the employee finds objectionable. The employee should then, if possible, be given the opportunity to reconsider accepting the role.

Proceeding with these considerations in mind will make an employee more likely to accept a new position, and if the matter proceeds to litigation, reduce the risk (and liability) of constructive dismissal.

To view the Trial Decision click here:

To view Divisional Court Decision client here:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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