Bankruptcy Trumps Judge's decision to pay out dismissed employee.
By the spring of 2014 Stephen had worked for a real estate brokerage firm for just over 17 years and was 63 years old. He was the Vice President of Finance making over $180,000 a year.
One day the boss showed up in his office with the company lawyer and told him that as a result of financial difficulties the company was undergoing they were reducing his salary by 40%, along with a number of other employees, for three months.
It is clear from reading the judge’s decision in this case that Stephen did the right thing and lawyered up right away. Within two days he sent his boss an email indicating that he was not in agreement with the temporary cutback and wanted to know when the amount he was losing would be repaid and his salary reinstated. He never received a reply in writing.
Four days after the first meeting the boss and the lawyer met with Stephen again and told him that they decided that the pay cut would be permanent.
Later that day, the company lawyer met with him and told him that he needed to go. He said that Stephen should look for another job and that the company did not want him in his position anymore. The lawyer said the company was going to replace him with somebody less expensive and was thinking about laying him off all together. The pay cheque Stephen received that day for the previous two weeks already reflected the 40% reduction. The cut was retroactive.
Again, clearly on his lawyer’s advice, Stephen wrote another letter to his employer outlining this entire history of events and stating that he felt he had been dismissed as a result of the arbitrary and unfair change in his remuneration without proper notice. Stephen left.
When the matter ended up before a judge the employer claimed that, while it had not actually dismissed Stephen, if it had it was for just cause and they didn’t owe him any pay in lieu of notice. Their list of complaints about Stephen’s performance included him being rude to the office cleaners and unapproachable by staff. The judge thought the company was grasping for straws to justify its constructive dismissal of Stephen.
A constructive dismissal takes place, “when an employer’s conduct evinces an intention no longer to be bound by the employment contract.” A “constructive” dismissal is, at law, the same as sopmeone being flatly terminated. The only difference is that words “You are fired!” are never written or spoken. The judge had little hesitation in concluding that Stephen had been constructively dismissed. To be fair, the writing was on the wall. When telling Stephen that his pay was being cut by 40% for three months didn’t provoke him to stand up and quit, the employer came back a few days later to tell him that it was a permanent cut. When that didn’t provoke him sufficiently to walk out the door they came back again and told him that he needed to go. Apparently they were suffering from the delusion that if Stephen lost his temper as a result of this treatment and walked out the door they would not have to pay.
Given their course of conduct, even if Stephen had lost his cool and walked out, he likely would have still won the lawsuit. As it was, Stephen did the smarter thing and left on the heels of delivering a letter clearly outlining the chain of events and his legal position.
Unfortunately, some months after Stephen’s termination he was declared legally blind. He was 63 years old, losing his sight, and trying to find work. The judge awarded him 24 months’ pay in lieu of notice, the maximum anyone can be awarded in Ontario but the two years was not up by the time the decision was rendered. The judge thought Stephen had a 1% chance, given his age and health issues, of finding a new job and reduced the award to 23¾ months.
Within one month of the decision being rendered, the employer declared bankruptcy. The boss who did all this to Stephen was one of the secured creditors and if there was any money to be had from the carcass of the company he would have been one of the first in line. Stephen, although he won the lawsuit, was not a secured creditor and unsecured creditors usually get very little, if anything, when a bankruptcy occurs. A truly pyric victory.
Ed Canning practices labour and employment law with Ross & McBride LLP, in Hamilton, representing both employers and employees. You can email him at firstname.lastname@example.org