|
Ex-employee granted $800,000 in constructive dismissal case |
|
|
|
|
|
Written by Howard A. Levitt and Voula Michaelidis
|
OPG made changes that significantly reduced compensation
 Lawrence Doran was a “lifer.” He had spent his entire working career with Ontario Power Generation (OPG) formerly Ontario Hydro. A 30-year veteran, his earnings approximated $400,000 per year. However, in late 2003 and early 2004 his work world collapsed.
The Ontario government fired OPG’s board of directors, CEO, COO, and several senior executives. As a result, the reporting hierarchy changed, projects were suspended, and adverse changes were made to senior management’s compensation levels.
As vice president, business development, Doran’s duties were to
identify and develop new business for OPG. However, the Manley Report
recommended that OPG should shift its focus and withdraw from wind
power, solar, biomass, and small hydro projects, which largely
eliminated Doran’s responsibilities.
 Doran
approached several superiors seeking clarity about his position.
Although his own superior told him that he would be “underutilized for
the foreseeable future,” his persistence culminated in a meeting with
CEO Richard Dicerni. Doran testified that Dicerni told him that if he
did not agree with the changes he could resign or retire. Upon hearing
this, Doran resigned, three-and-one-half months after the changes were
put into effect.
Justice Maureen Forestell of the Ontario Superior Court, relying upon the Farber decision of the Supreme Court of Canada (Farber v. Royal Trust Company
[1996], S.C.J. No. 118), defined constructive dismissal as occurring
when the essential terms of an employment agreement are substantially
changed.
Remuneration
In
1995, Ontario Hydro introduced the Performance Achievement Plan (PAP).
Bonuses would be granted based on the performance of the company,
business unit, and individual. Participation was optional and materials
promoting the PAP stressed the potential to earn up to an additional 40
per cent of base salary. Ontario Hydro’s board had the right to suspend
or amend the PAP. However, Doran believed that the board could not do
this without replacing it with something of equivalent value.
When
OPG was created in 1999, the PAP was replaced with the Annual Incentive
Plan and the Long-term Incentive Plan to fulfill OPG’s promise to
increase executive compensation to market rates. However, the documents
that provided OPG the right to eliminate or change the plans were not
provided to Doran.
The judge accepted that OPG made various
representations to its employees about the intention to move its
overall remuneration to market rates. This created an implied term in
the employment contracts that remuneration would remain competitive and
would either stay the same or increase. Knowing that Doran’s overall
remuneration would have decreased by a factor of 14 to 17 per cent in
the following year, she found that this was a breach of contract. She
also found that, even if he had been aware of the clause permitting OPG
to terminate the bonus, it was subject to an understanding that it
would have to be replaced by other forms of remuneration in order to
continue to meet market levels.
Notably, Justice Forestell
found that an increase of this magnitude was not sufficient to
constitute a constructive dismissal, and would only amount to a breach
of contract — permitting him to sue for damages — if he had not
resigned.
Demotion
The
court found that there was no articulable plan to keep Doran engaged.
Although OPG’s witnesses, Dicerni and Jake Epp, argued that he had much
to keep him busy, they did not advise him of that during their
discussions.
Although skeptical of the financial crisis
pleaded by OPG, the court stated that financial circumstances or
corporate reorganizations do not excuse a breach of contract. The court
found that the reduction in remuneration and duties constituted a
constructive dismissal and awarded Doran 24 months pay.
Duty to mitigate
There
are two remaining points that are being appealed. The first is whether
Doran had an obligation to remain an employee throughout the 24-month
notice period as part of his duty to mitigate.
The Mifsud case of the Ontario Court of Appeal (Mifsud v. MacMillan Bathurst Inc.
(1989), 28 C.C.E.L. 228) found that, if relations are not acrimonious
and salary is not impacted, an employee would have to mitigate by
continuing to work. The judge found that Doran’s overall remuneration
was affected and would likely be further affected since, with cut
duties, his bonuses would likely be reduced. It was not incumbent upon
an employee to “wander around the employer’s premises exploring ‘the
possibility’ of a different position” by way of mitigation,
particularly for a lower and uncertain remuneration.
Pension
The
second issue is the impact of pension losses or gains. If the plaintiff
had been employed for 24 more months, the value of his pension would
have been worth approximately $180,000 more. However, since he opted
for early retirement, he received approximately $300,000 in pension
during those two years. Over the period of notice, he had an increase
of $120,000 in pension. The defendant is applying for that reduction.
However, if the pension is viewed as deferred compensation,
particularly since it was a contributory plan, then it should not be
reduced and the plaintiff should receive the $180,000 increase. The
plaintiff is appealing for that additional $180,000.
Learnings from this case:
1. Do not assume that a reduction in remuneration is a constructive dismissal; and
2.
If you have a policy providing the right to terminate a plan at any
time, ensure that the policy states that it need not be replaced by any
other form of remuneration.
Howard A. Levitt, counsel, Lang Michener LLP, is the author of Canada’s leading dismissal text book, The Law of Dismissal in Canada and editor-in-chief of the national law report, The Dismissal and Employment Law Digest.
Howard provides his clients with preventative advice on all aspects of
employment law, labour law, and human resource litigation. Contact
Howard at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
, or via his direct line at 416-307-4059
Voula
Michaelidis, associate, Lang Michener LLP, has represented employer and
employee clients in all aspects of employment law and human rights law.
She has counseled clients on their rights and responsibilities under
the numerous laws and regulations that govern workplace relationships.
Contact Voula at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
, or via her direct line at 416-307-4153.
Howard and Voula were counsel for the plaintiff in the above case.
|
|
|
|
