eCaseNote 2012 No. 01

A demotion can equal dismissal

Haddock v. Thrifty Foods (2003) Ltd.,

A recent decision of the British Columbia Supreme Court has provided insight into the requirements of an employer when they wish to demote an employee. When the demotion can be considered a “constructive dismissal” it requires a sufficient amount of notice. This notice, however, cannot be so old that it expires.

Haddock worked for the Thrifty Foods grocery store chain (“Thrifty”) for 16 years. He managed the seafood section. His work performance was exemplary for many years until he experienced personal problems and turned to alcohol. His work performance in the final two years with Thrifty became unsatisfactory. Thrifty was forced to suspend Haddock in July of 2002. Haddock’s performance remained sub-par and in October of 2003, Thrifty provided Haddock with a letter of warning. This letter said in no uncertain terms that Haddock was in jeopardy of being demoted or dismissed if he did not improve. The letter outlined a number of specific requirements that Haddock had to meet in his work.

Haddock’s problems continued, which prompted him to take short-term disability leave and attend an alcohol abuse rehabilitation program with Thrifty’s approval and support. Haddock returned in March of 2004 and saw some short term improvement before his performance again regressed. Finally, in August of 2004, Haddock become over-intoxicated at a company weekend softball tournament and failed to attend a significant meeting on Monday. He was then told that he would be demoted to a non-management clerk position. In negotiating a possible transfer, it was decided that Haddock would take vacation and go on further short term disability leave. After this leave expired, Haddock did not return to work and Thrifty was unable to reach Haddock to ask why. Thrifty then dismissed Haddock, who subsequently found alternative employment at a lower wage than either his managerial position, or the clerk position offered by Thrifty.

At trial, there were three interesting issues that the court had to decide. The first was whether Haddock’s demotion constituted a constructive dismissal. In deciding that it was, the court pointed out that the accepted test requires a “substantial alteration in the essential terms of the employment contract”. In this instance a pay reduction of 16-20%, in addition to the lost responsibilities and prestige of a managerial position constituted such an alteration. Because Thrifty had constructively dismissed Haddock, they needed to provide him with adequate warning, which was the second issue. The only way to escape this requirement was if Haddock’s conduct was so “grossly deficient” that the threat of dismissal should be obvious to him. Haddock’s performance did not meet this standard. As such, in order to have justifiably dismissed Haddock, Thrifty needed to demonstrate the following:

  1. That Thrifty established a reasonable objective standard of performance,
  2. That Haddock had failed to meet those standards,
  3. That Haddock received warnings that he had failed to meet those standards and his position would be in jeopardy if he continued to fail to meet them; and
  4. (d) That Haddock was given reasonable time to correct the situation.

The Court found that requirements (a), (b), and (d) were met by Thrifty’s disciplinary steps and Haddock’s performance. However, the requirement of providing warnings was not met because the October 2003 warning provided to Haddock was not sufficiently current in order to make Haddock aware his job was in jeopardy. In making this finding, the Court pointed out that the previous warnings provided to Haddock were sufficient at the time they were given, but they did not sufficiently convey to Haddock that he was in jeopardy at the time that he was actually demoted. The Court noted the amount of time that had elapsed between the warning to the dismissal and especially the fact that Haddock had successfully completed an alcohol rehabilitation program and subsequently improved his performance for a period of time in the interim. Haddock was awarded damages in lieu of reasonable notice.

The third issue was whether Haddock failed to adequately mitigate his damages by refusing the lower position offered by Thrifty. The Court pointed out that the circumstances where the duty to mitigate would require a dismissed employee to accept a position with the same employer are rare. The test to ascertain this fact is whether or not a “reasonable employee” would accept the position with their former employer. The factors to consider include whether the relationship between employee and employer has become “so acrimonious that a reasonable person would not expect those sides to work together in harmony” and whether the employee would be subjected to “an atmosphere of hostility, embarrassment or humiliation”.

In this instance, the Court found that despite the reduction in salary and prestige, Haddock should have accepted the clerk position and failed to mitigate his losses. Reinforcing the Court’s decision was the fact that Haddock had acknowledged that the new position, which carried fewer responsibilities, would have reduced his stress level and assisted him in dealing with his personal issues. As such, the Court assessed Haddock’s losses as though he were earning the salary of the clerk position, and not his actual salary.

It is reasonable to believe that the notice standard would be adopted in this province. Employers should be aware that demoting their employees can be construed as constructively dismissing them when the essential terms of the employment contract are “substantially altered.” As such, employees’ performance should be regularly assessed and deficient performance should be regularly monitored. Before demoting or dismissing employees, sufficient and current warning must be provided. Employers should also be aware that in exceptional circumstances they may offer an employee continued employment, even in a lower paid position, while the employee searches for alternative work. If the relationship remains somewhat amicable and the employee would not be subjected to a negative atmosphere at work, then they could be required to mitigate their losses in such a way. This applies especially in situations where the employee is only meant to be demoted and the employer does not wish to ultimately terminate the employment relationship.

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