Duty to mitigate

In Chandran v National Bank 2012 ONCA 205 (CanLII), the Ontario Court of Appeal clarified that an employee is not required to mitigate by taking a demotion in the wake of being constructively dismissed where the employee would be subject to an atmosphere of embarrassment or humiliation.

Mr. Chandran started his employment with the Bank in 1989 as an account trainee. Over the next 18 years, he worked his way up to the position of senior manager of the Vaughan Commercial Banking Centre. In 2007, an informal employee satisfaction survey revealed Mr. Chandran had engaged in bullying behaviours. When confronted with these allegations, Mr. Chandran denied the behaviour. However, no investigation was undertaken by the Bank to ascertain the veracity of the complaints and Mr. Chandran was soon after issued a disciplinary letter, the effect of which, the Court found, was to provide Mr. Chandran with a  final warning. The Bank removed Mr. Chandran from his supervisory role and offered two alternate positions. Mr. Chandran felt those positions represented a demotion with respect to prestige, compensation and grade level.

Mr. Chandran took the position that he had lost all trust in the Bank to deal with him in a fair and professional manner. The Court agreed with Mr. Chandran and held that the actions of the Bank went to the root of the employment contract, fundamentally breaching the employment agreement and constituting a constructive dismissal.

On the basis of Evans v Teamsters, Local 31, 2008 SCC 20 (CanLII) (“Evans”) the Bank argued Mr. Chandran should have accepted one of the two offered positions while he searched for alternative employment and by refusing he failed to fulfill his obligation to mitigate his damages. The Trial Judge considered whether the transfer and the disciplinary letter constituted a constructive dismissal. If the answer to this question was found to be affirmative, the Court then had to decide if the employee had an obligation to mitigate his damages by accepting one of the two positions offered. At trial the Court found that Mr. Chandran had been constructively dismissed as any reasonable person in his position would find that the disciplinary letter and demotion went to the core of the essential terms of the employment contract. With respect to mitigation, the Trial Judge distinguished Evans finding that Mr. Chandran “would have been subjected to ‘an atmosphere of embarrassment or humiliation’ in an environment where he could not expect that his employer would not act to put ‘his interests in jeopardy’ if he had accepted reemployment.”

On appeal, the Bank contended that the Trial Judge erred by concluding that Mr. Chandran was not required to mitigate his damages by accepting one of the two offered positions. However, in an unanimous decision, the Court of Appeal found no palpable and overriding error in the reasoning of the Trial Judge.

When faced with a complaint against an employee, employers should ensure that they complete proper investigations prior to disciplining or demoting an employee, or they may face a claim of constructive dismissal. While, in general, an employee who is constructively dismissed must mitigate his or her damages, including by taking a job with the former employer,  this decisions suggests that the employee is not required to accept a position that resembles a demotion or disciplinary action, particularly where the employee held a senior position.

The assistance of Jessica Allen, articling student at Norton Rose Canada LLP, is greatly appreciated.