Written by Irvin Schein, Litigator, Mediator and Arbitrator, and originally published at irvinschein.com.

Morgan v. Vitran Express Canada Inc. provides a useful reminder as to the state of the law on constructive dismissal in Ontario.

Vitran employed Morgan as a dock supervisor for almost 25 years.  In that capacity, Morgan had supervised 22 men on a dock, sharing that responsibility with other dock supervisors. Vitran then changed his job to “freight analyst”, a position created specifically for him, which was described by the trial judge as a job that involved checking on two part-time workers.  She described the position as being of less importance and prestige with very little supervisory function and little opportunity to make decisions and exercise discretion.

As a result, the trial judge found that Vitran had altered the essential terms of Morgan’s employment in a substantial way.

Morgan left the company rather than accept the new position and sued for damages for constructive dismissal.

He was successful at trial.  The trial judge rejected Vitran’s argument at trial that a reasonable person in Morgan’s situation would have accepted the opportunity to continue working at Vitran as a freight analyst, thereby mitigating his damages.

Vitran appealed, arguing both that there had been no constructive dismissal and also that if there had been a constructive dismissal, Morgan had acted unreasonably in refusing to mitigate his damages by continuing to work at Vitran.

Both of these arguments were dismissed by the Court of Appeal.

On the constructive dismissal issue, the Court of Appeal referred to the state of the law as articulated by the Supreme Court of Canada earlier this year in Potter v. New Brunswick Legal Aid Services Commission and reiterated the two-part test for constructive dismissal.  Firstly, the court must determine whether or not there has been a substantial alteration of an essential term of the employment contract.  Secondly, the court must consider whether the conduct of the employer in making that alteration would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract.

In this case, the Court of Appeal agreed with the trial judge that Vitran had indeed substantially altered the essential terms of the employment contract and furthermore, that the circumstances viewed objectively would have made it clear to any reasonable person that Vitran no longer intended to be bound by the terms of the employment agreement.

In essence, a demotion will constitute a substantial change to the essential terms of an employment contract which will warrant the finding of constructive dismissal if it can be reasonably said that the employer simply does not want the employee around anymore.  The court agreed that this was the case with Morgan.

On the mitigation point, the trial judge had dismissed Vitran’s argument because she found that Morgan had been subject to an unfriendly work environment and that his personal relationships with several of his superiors were acrimonious.  As a result, according to the trial judge, Morgan was justified in walking out the door and starting this lawsuit.

There is well established Supreme Court of Canada case law on the circumstances in which a dismissed employee must mitigate damages by returning to work for the same employer.  It is clear that there is no such obligation where the work environment is unfriendly, where the new position is of lesser importance than the previous position and where the employee will suffer a loss of dignity in the eyes of those who had previously worked under his supervision.  That was all true in this case.

Furthermore, as the freight analyst position had not been posted, the court agreed that other employees would have known that it was a position created especially for him because of perceived ineptitude.  The court also agreed that his personal relationships with his supervisors were acrimonious in the sense that no matter what he did, they continued to criticize him.

As a result, Morgan was justified in leaving rather than accepting the demotion.