COURT FILE NO.: CV-11-435083

DATE: 20131217

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

OTONEIL DAMASO

Plaintiff

– and –

PSI PERIPHERAL SOLUTIONS INC., a body corporate, incorporated under the laws of Ontario

Defendant

Davies Bagambiire, for the Plaintiff

Albert Campea, for the Defendant

HEARD: October 21, 22, 23 and 24, 2013

t. mcewen j.

reasons for decision

introduction

1The plaintiff, Otoneil Damaso (“Damaso”), brings this action against the defendant, PSI Peripheral Solutions Inc. (“PSI”), for wrongful dismissal. PSI is a body corporate, incorporated under the laws of Ontario.

overview

2Damaso began working for PSI in May 1999. His position title was that of a “Field Service Technician and Computer Technician”. He and PSI signed a Position Description that described the objective of his position, being “to service the in-house LAN networking, other related software and hardware issues, and to provide service for PSI printer product line.”

3At that time, PSI was in the business of computerized high-speed envelope printing. Damaso was tasked with the job of servicing and maintaining the printers. Between 1999 and 2005 he would travel, primarily through the U.S., servicing and repairing the printers.

4Historically, PSI has had approximately 17 to 35 employees. John Panunto (“Mr. Panunto”) has been the president for over 20 years. His wife Nancy Panunto (“Mrs. Panunto”) has worked for the company since 2005 as the marketing director (collectively the “Panuntos”).

5In 2005, PSI created a new division that was called the Automated Division. Essentially, this division provided machinery designed to replace manual labour required to insert envelopes and/or invoices into boxes. Software created by PSI was an integral part of the Automated Division. Damaso testified that he went from being a Field Technician to a software support analyst in the Automated Division. PSI disputes this job description that Damaso uses to describe his position while in the Automated Division. The evidence at trial, however, demonstrated that Damaso’s cubicle at PSI contained the job title “Software Specialist”. This was clearly in reference to his work in the Automated Division.

6When Damaso started at PSI in 1999, he earned $28,000 per year. He received raises on and off thereafter. There was no increase in 2004 given the fact that the company was suffering from financial difficulty. By 2008, Damaso was earning $55,000 per year. Once again, in 2008, PSI again began experiencing some financial difficulties. Damaso did not receive any pay increases from 2008 up until the time he left the company.

7In early 2009, PSI made Damaso its IT Administrator. In April 2009, the company purchased a software system from a company called ERP. The system was designed to provide a common operating base for the various departments of PSI so that they had the same system from which to extract information. ERP required that PSI have a primary contact person, whom it called the “project champion”, to liaise with in respect of to the implementation of the ERP system. PSI appointed Damaso as the project champion. At the same time, Damaso was still doing some software support work with respect to the Automated Division.

8Commencing in January 2010, Damaso began to raise issues with PSI about obtaining a pay raise given the functions he was now performing. He felt that his workload was inappropriate and he was working beyond capacity. In the past, Damaso and Mr. Panunto had sparred over financial issues concerning salary and expenses. The issues had always been resolved.

9On February 6, 2011, Damaso sent an email to the Panuntos outlining his concerns with respect to issues of salary and being overwhelmed at work. A number of meetings followed. There is some dispute between the parties, as will be discussed further below, as to how many meetings took place, but it is safe to say that the Panuntos took issue with Damaso’s claim that he was being overworked. They also took issue with the fact that he claimed that he had taken on new responsibilities over and above his initial role / job description with the company. They took the position that the tasks that he was performing in 2009-2011 were a natural extension of his initial job responsibilities and necessary to keep him employed full time since business had slowed.

10Ultimately, a meeting was set up on April 4, 2011. It was attended by Damaso, the Panuntos and an employee named Valerie Gallant (“Gallant”). It was not a happy meeting. Mr. Panunto advised Damaso that he had been reviewing PSI’s security cameras for an unrelated matter, and had noticed that Mr. Panunto was only working 7.5 hours per day and not 8 hours per day. Damaso reiterated that he was not prepared to do IT functions after April 15, 2011, given the fact that he was overworked and could not properly attend to all of his job functions. Mr. Panunto countered to the effect that Damaso would not even have a job if he had not taken on the extra tasks due to the financial problems that the company was encountering.

11Mr. Panunto advised that he would not be providing Damaso with any raise. After the meeting, PSI retained an independent contractor by the name of Bir Flora (“Flora”) to take over IT functions at PSI. On the instructions of Mr. Panunto, Flora changed the passwords so that Damaso could no longer independently access PSI’s internal computer system, including the ERP software.

12Ultimately, on May 13, 2011, another meeting was convened with the Panuntos, Damaso and Gallant. Damaso was provided with a letter of termination dated May 13, 2011. The letter provided Damaso, amongst other things, with 12 months’ working notice at his current salary. It further set out a number of job responsibilities that Damaso was to perform, including information technology, software (including ERP) service administration and ongoing support with automation customers.

13On May 15, 2011, Damaso attended upon his family doctor, Dr. Agarwal, who ultimately provided Damaso with disability certificates indicating that he should remain off from work until September 2011. Damaso underwent counselling between June 16, 2011, and September 26, 2011. He attended four sessions to address anxiety and mood issues.

14Upon the conclusion of his counselling, Damaso wrote to Mr. Panunto on September 26, 2011. In the letter he took the position that he had been constructively dismissed and sought vacation pay.

the issues

15This case raises the following issues:

1. Was Damaso constructively dismissed or did he repudiate his contract of employment with PSI?

2. Did Damaso fail to mitigate his damages?

3. What damages, if any, are Damaso entitled to?

analysis

Constructive Dismissal v. Repudiation

16For the reasons below, I find that PSI did constructively dismiss Damaso.

17PSI submits that there were no changes to Damaso’s job duties, or if there were, Damaso condoned and accepted the changes that had occurred by January 2010. PSI further submits that Damaso has thus fully mitigated any damages by staying on with PSI until May 2011.

18Conversely, Damaso submits that at the time he commenced employment with PSI, it was in the simple business of providing laser mail printers that Damaso installed and serviced. Damaso’s employment thereafter changed dramatically in 2005 when he began working in the newly established Automated Division. His employment was significantly altered again when he assumed the added duties of IT administrator and ERP project champion.

19In Farber v. Royal Trust Co., 1997 CanLII 387 (SCC), [1997] 1 S.C.R. 846, the Supreme Court of Canada set out the following principles with respect to the issue of constructive dismissal, at paras. 24-26, 33:

Where an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed. Since the employer has not formally dismissed the employee, this is referred to as “constructive dismissal”. By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract. The employee can then treat the contract as resiliated for breach and can leave. In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages.

On the other hand, an employer can make any changes to an employee’s position that are allowed by the contract, inter alia as part of the employer’s managerial authority. Such changes to the employee’s position will not be changes to the employment contract, but rather applications thereof. The extent of the employer’s discretion to make changes will depend on what the parties agreed when they entered into the contract. R. P. Gagnon made the following comment on this point in Le droit du travail du Québec: pratiques et théories (3rd ed. 1996), at p. 66:

[TRANSLATION] Moreover, to what extent can the employer change the nature of the employee’s work or the employee’s duties and responsibilities? This issue is increasingly important, inter alia because it is often an essential consideration for employees in their employment that they be able to do the job for which they were hired, given both the satisfaction they legitimately wish to derive from it and their concern to maintain and develop their qualifications and skills in their field of work. The answer takes into account the form of and circumstances surrounding the hiring of the employee and thus how much discretion the employer explicitly or implicitly has to exercise managerial authority in this regard. [Citation omitted.]

To reach the conclusion that an employee has been constructively dismissed, the court must therefore determine whether the unilateral changes imposed by the employer substantially altered the essential terms of the employee’s contract of employment. For this purpose, the judge must ask whether, at the time the offer was made, a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed. The fact that the employee may have been prepared to accept some of the changes is not conclusive, because there might be other reasons for the employee’s willingness to accept less then what he or she was entitled to have.

Thus, it has been established in a number of Canadian common law decisions that where an employer unilaterally makes a fundamental or substantial change to an employee’s contract of employment – a change that violates the contract’s terms – the employer is committing a fundamental breach of the contract that results in its termination and entitles the employee to consider himself or herself constructively dismissed. The employee can then claim damages from the employer in lieu of reasonable notice [Citations omitted].

20It must be kept in mind, however, that employers are entitled to some flexibility in managing their businesses. In Vanelli v. Sobeys Capital Inc., 2005 CanLII 4091, the Ontario Court of Appeal held that an adjustment in the employee’s schedule to modestly increase work duties without additional pay did not constitute a fundamental breach of the employment contract. In that case, the employer required the employee to close the workplace one day per week. The worker’s hours were to be adjusted to account for the change, and he was to be compensated for the work “in the normal course.” Lastly, as stated by Lane J. in Kolcun v. Carsten Electronics Limited, 1993 CarswellOnt 3324 (Gen. Div.), at para. 36:

The test for a constructive dismissal is an objective one. An employer must have some latitude to make changes in the disposition of his forces as his business needs change. That an employee does not like a proposed new assignment does not turn the proposal into a constructive dismissal. It is only where the alteration of the employee’s position by the employer objectively constitutes a fundamental change in the employment that a constructive dismissal can arise; in general nothing is more likely to go to the substance of the contract than the nature and duties of the position [Citations omitted].

21I accept that PSI was entitled to some latitude to make changes to Damaso’s job description as its business changed and evolved. I further accept that PSI experienced obvious business difficulties in or about 2004/2005 and from 2008-2010 that had negative repercussions both at that time and thereafter.

22In my view, however, neither of these justify the ultimate decision by PSI, as per its May 13, 2011 letter, to demand that Damaso continue to perform all of the duties set out in the position description that was signed in May 1999, plus the duties that evolved thereafter involving the Automated Division and ERP implementation and maintenance; these extra duties could not possibly have been contemplated in the 1999 position description. Furthermore, I accept that the additional duties that were put upon Damaso by PSI post-1999 (i.e. the Automated Division, IT administration and ERP) did overburden him to the extent that he was unable to complete all of the tasks. This is particularly so when one considers the fact that PSI expected Damaso to continue on with his ERP functions notwithstanding the fact that they had taken from him the passwords. This denied him access to the server so that he could only perform any form of service or repairs to the ERP system if someone else logged him in to the system via their own password.

23There is no dispute that when Damaso began performing duties in the Automated Division in 2005, it marked a distinct and definite departure from the work he had previously carried out with the laser mail printers. Damaso’s immediate supervisor at the time, Murray Etherington (“Etherington”), testified at trial. Etherington was hired by the company in 2006. He described Damaso as a “software guru”. He praised Damaso’s work on the major installations that Etherington supervised and described Damaso as being the project manager when he was on site. Etherington also testified that Damaso continued to do some modest laser mail printer work and confirmed his transfer into the IT department in early 2009, as well as his acting as project champion on the ERP project.

24He further confirmed that while they were doing the installations in the Automated Division at clients’ premises, Damaso put in long hours in the neighbourhood of 12 to 14 hours per day. He described Damaso as having a positive attitude about the company, and described him as a “PSI man”. Etherington left the company in 2009.

25It is also worth noting that up until 2010, even though there had been some monetary disputes between Damaso and PSI about raises and expenses, Damaso had never received a negative performance review (although they were only sporadically conducted). The evidence did not disclose any dissatisfaction with his work prior to 2011.

26Difficulties between Damaso and PSI began in 2010 when he had two meetings with Mr. Panunto to attempt to negotiate a salary increase and seek clarification of his work duties. Damaso was not successful. The relationship began to deteriorate more significantly after Damaso sent the February 6, 2011 email to the Panuntos outlining in detail his frustrations with respect to his salary and work obligations.

27There are discrepancies between the evidence of Damaso and the Panuntos with respect to a number of issues, but particularly with respect to the meetings that were allegedly held between them in the critical 2010/2011 timeframe. Where the evidence of Damaso and the Panuntos differ with respect to whether the meetings occurred and what was said at the meetings, I prefer the evidence of Damaso. Damaso’s evidence was generally more consistent than the Panuntos’ evidence, which was generally not supported by the documentary evidence. I particularly had difficulty with the evidence of Mr. Panunto, which was at times not credible and led to my view that he was not a reliable witness.

28One such example stems from one of the meetings that Damaso had with Mr. Panunto in 2010. Damaso testified that Mr. Panunto told him that he would discuss Damaso’s request for a raise with the board of directors and get back to Damaso. Mr. Panunto did not dispute this at trial. Mrs. Panunto, however, testified that employee salaries were never discussed at board meetings, and there was no exception with respect to Damaso. I accept Mrs. Panunto’s evidence since it is logical in the circumstances. In my view, this demonstrates that Mr. Panunto was not prepared to reasonably discuss a salary increase with Damaso, and made up a story to deflect Damaso’s inquiries.

29Further, Mrs. Panunto testified that she met with Damaso on two occasions, once in February of 2011 and a second time in late March or early April 2011. Damaso admits that they met the first time but denies the second meeting. Damaso disputes Mrs. Panunto’s testimony that she discussed with him a potential arrangement in which he would receive 50% by way of salary increase and the remaining 50% by way of incentive bonuses if he could attract work to PSI. I prefer Damaso’s evidence in this regard for the simple reason that there is no documentary evidence, including emails, to support Mrs. Panunto’s version of events. I do not accept that had this proposal been made, which was a departure from earlier discussions concerning a raise and his existing remuneration structure, that it would not have been recorded by either her or Damaso. There is no corroborating evidence of any type in this regard.

30I further do not accept the Panuntos’ evidence that they were honestly attempting to provide Damaso with any sort of appropriate working notice as a result of the meetings of April 4 and May 13, 2011. The notes of the meeting of April 4, 2011, and Mr. Panunto’s testimony, reflect the fact that PSI, via Mr. Panunto, was taking a very hard line with Damaso. I make this finding for the following reasons:

1. Mr. Panunto, in his evidence, was clearly irritated by Damaso’s request for raises over the years that Mr. Panunto felt were designed to threaten the company;

2. Shortly before the April 4, 2011 meeting, Mr. Panunto was watching surveillance videos for reasons he claimed were unrelated to Damaso’s employment, and he noticed that Damaso left work 30 minutes early on a number of occasions. Mr. Panunto testified that he discussed the matter with Damaso, who admitted that he had been doing this for approximately two years. Damaso denied making such an admission. He further testified that he often came into work much earlier than he was supposed to so that he could work on computers in the absence of other employees, and that he often worked remotely from home. I accept Damaso’s evidence. Mr. Panunto’s evidence is inconsistent with Damaso’s work history at PSI. The evidence demonstrated that Damaso had worked additional hours when necessary, and this was confirmed by Etherington’s description of Damaso’s work ethic. Furthermore, it was unreasonable for Mr. Panunto to come to this conclusion since he had no understanding of the totality of hours Damaso was working at the time because of Damaso’s early morning start times and his working remotely from home;

3. The notes of the April 4, 2011 meeting disclose that Mr. Panunto stated that he would have offered a salary increase to Damaso but for the allegation of Damaso’s reduced work hours. Rather incredibly, in my view, at trial Mr. Panunto described Damaso’s alleged reduced hours as “theft” and accused Damaso of “stealing” from the company. This description is a gross overstatement and not borne out by the evidence. I accept Damaso’s evidence that this hostility was evident during the April 4, 2011 meeting and the subsequent May 13, 2011 meeting; and,

4. In or about the time of the April 4, 2011 meeting, Damaso advised the Panuntos that he would no longer perform the IT duties and asked them to be reassigned as of April 15, 2011. As noted, PSI retained Flora to take over these tasks and changed the passwords so that Damaso could no longer access the system. PSI did not take the position that it had cause to terminate Damaso because of this refusal, and a subsequent meeting was scheduled for May 13, 2011.

31On May 13, 2011, when the Panuntos, Damaso and Gallant again attended a meeting, Damaso was handed the letter providing him with 12 months’ working notice at his existing pay rate of $55,000 per year. Importantly, the letter also contained the following clause:

4. During the period up to the Termination Date, you are expected to discharge your duties to the best of your ability, in accordance with our standards of performance and in the best interests of PSI. You must continue to perform the duties as set out in your Field Service Technician and Computer Technician Position Description (“Position Description”) that you signed in May 12, 1999, a copy of which is attached. This includes your responsibilities for information technology, software (including ERP), and service administration, along with your obligation to communicate with our automation customers. You must also continue to report to us on any issues with customers. PSI will not tolerate you refusing to perform these duties. Your regular work day is from 7:30 a.m. to 4:00 p.m. and you are not permitted to leave early unless you have prior written authorization from PSI. You are allotted a half hour for lunch daily. In addition, you are not permitted to make any negative or disparaging comments about PSI to employees, suppliers or customers. We also remind you of your duty of confidentiality which requires that you do not share confidential company information with any third party without written consent of PSI.

32In my view, it was at this meeting that the constructive dismissal took place. In the aforementioned letter, PSI took the position that Damaso had to continue to perform the duties set out in the initial May 12, 1999 agreement, plus his obligations in the Automated Division and internal IT, including the administration of the ERP system. This demand took place notwithstanding the fact that Damaso had reasonably indicated that he could not perform all of these duties. It would also have Damaso continue to do the ERP work notwithstanding the fact that PSI had changed all of his passwords and he could no longer access the system without another PSI employee performing that task for him. In my view, it was unreasonable, not only to demand that he continue on with all of the aforementioned responsibilities, but that he perform the ERP duties without the proper ability to do so.

33Damaso had been attempting for approximately one year to negotiate a reduction in the number of services that he was to perform without avail. In my view, PSI had altered his position with the company in a fundamental way by adding to his duties when it was undergoing financial difficulties to the extent that he could no longer meaningfully satisfy the job requirements given the hours of work required to do so. Furthermore, Mr. Panunto’s obvious hostility towards him, and the demand that he perform the ERP services without the necessary passwords, resulted in a humiliating situation to Damaso and reflected a clear demotion. Mr. Panunto readily testified at trial that he no longer had any trust in Damaso, and testified that by May 31, 2011, he took the view that Damaso had committed “three strikes” and that “he was out”.

34I reject PSI’s argument that the fundamental changes with respect to the additional work duties were present as of February 2010, and that for the year thereafter, Damaso entirely mitigated his loss. The evidence does not support such a view. The evidence demonstrates that Damaso clearly and repeatedly articulated that he could not continue performing the additional work duties that PSI required him to do given its financial situation, and he did not accept the change. The evidence further discloses that Mr. Panunto negotiated with Damaso throughout 2010 and early 2011, and certainly led Damaso to believe that a clarification of his job duties and a potential raise of pay was a reasonably possible conclusion. These hopes were dashed as of the April 4 and May 13, 2011 meetings at which Mr. Panunto took a hostile tone and ultimately dismissed Damaso. I further do not find that Damaso repudiated the contract of employment by his behaviour. As noted, I accept that he could not reasonably perform the duties that PSI now expected of him given the number of tasks that he would be required to perform and the hours that it would take to perform them. When Damaso advised that he could no longer do the IT work in the April 4, 2011 meeting, PSI did not take the position that he was repudiating the agreement or that he could be terminated for cause. This, along with the aforementioned evidence, does not support PSI’s argument of repudiation.

mitigation

35PSI submits that Damaso failed to mitigate his damages in two ways:

1. That his claims of illness and disability were not valid, and accordingly he should not have left the workplace on May 18, 2011, and remain off of work until September 26, 2011; and,

2. That he was able to return to work as of September 26, 2011, but refused to do so.

36I reject both of these submissions.

37I accept Damaso’s evidence that his termination, and the method that it was carried out, left him anxious and depressed. It is not disputed that he sought medical treatment from his family doctor and counselling up until September 26, 2011. No meaningful evidence was called by PSI to contradict the plaintiff’s evidence, nor was he effectively cross-examined on this point. Even though he did not make a claim for disability with PSI’s insurer, he clearly exhausted his sick days with PSI and pursued disability benefits through Employment Insurance. Lastly, on PSI’s own record of employment it is noted that Damaso left his employment due to “illness or injury”.

38Thereafter, it was not unreasonable for Mr. Damaso to refuse to return to work at PSI given what had transpired leading up to his termination.

39The Supreme Court of Canada in Evans v. Teamsters Local Union No. 131, 2008 SCC 20, [2008] 1 S.C.R. 661, set out the following relevant considerations, at para. 30, to be considered when determining whether an employee has mitigated his damages by returning to work:

Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so “[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious” (Mifsud v. MacMillan Bathurst Inc. (1989), 1989 CanLII 260 (ON CA), 70 O.R. (2d) 701, at p. 710). In Cox, the British Columbia Court of Appeal held that other relevant factors include the history and nature of the employment, whether or not the employee has commenced litigation, and whether the offer of re-employment was made while the employee was still working for the employer or only after he or she had already left (paras. 12-18). In my view, the foregoing elements all underline the importance of a multi-factored and contextual analysis. The critical element is that an employee “not [be] obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation” (Farquhar, 1988 CanLII 185 (BC CA), [1988] B.C.J. No. 191, at p. 94), and it is that factor which must be at the forefront of the inquiry into what is reasonable [Emphasis added].

40In this case, although the salary would have remained the same, the working conditions had been substantially altered. Damaso had been assigned additional tasks over time. PSI was not reasonable in assigning these extra tasks, and ultimately the work Damaso was to do on the PSI system was demeaning since his password had been taken away. Furthermore, I accept Damaso’s evidence that he was essentially being set up to be fired on a later date, and that the relationship between him and PSI, particularly its president Mr. Panunto, was acrimonious to the point of being poisonous. Mr. Panunto testified at trial that he considered Damaso to have stolen from the company, that he did not trust him and that he would not negotiate further with respect to any alteration of his duties or remuneration. All of this was clearly felt by Damaso as of May 13, 2011. For Damaso to have returned to the workplace, in my view, would have had him return to an atmosphere of hostility, embarrassment and humiliation. While PSI is to be credited for maintaining his health, dental and other benefits for two years after his termination, it simply did not provide him with a reasonable opportunity to mitigate given what had transpired.

damages

The Notice Period

41The parties do not disagree that a 12-month notice period is reasonable. It was the amount offered by PSI when Damaso was first terminated. Both counsel, in closing submissions, did not take issue with this notice period.

42At the time Damaso left PSI he was 47 years of age and had been employed with it for 12 years. His position was at best in the mid-range of the company. He had no one reporting to him and he essentially provided technical service that, in and of itself was important, but did not carry with it any sort of obligation to deal with staff or the financial performance of the company.

43In this case, I accept the notice period of 12 months as being reasonable.

Bad Faith Damages

44I do not find that PSI’s conduct constituted an egregious display of bad faith that would justify an award of damages for conduct in dismissal as enunciated by the Supreme Court of Canada in Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R 362. Even though I have made findings above that are critical of the employer, the fact remains that, from the employer’s perspective at least, it attempted to provide working notice of a reasonable nature and did provide Damaso with extended benefits and fully co-operated with him with respect to his application for sick benefits. It did not attack his reputation with other employees, misrepresent the reason for his dismissal or attempt to deprive him of any monetary amounts.

45In the circumstances I would award no monies for bad faith as I find that it did not exist.

disposition

46For the reasons above, I award Damaso damages in the amount of $55,000, constituting 12 months’ notice, to be paid by PSI. I dismiss Damaso’s claim for bad faith damages.

47Prejudgment interest shall also be awarded to Damaso.

48With respect to costs, if the parties cannot agree I will entertain submissions in writing, not to exceed three pages, together with a bill of costs. The plaintiff shall provide its submissions within 21 days and the defendant shall respond 14 days thereafter. Should, however, the parties require oral submission they can make arrangements through the trial co-ordinator.

T. McEwen J.