CITATION: Matheson v. Erie Mutual, 2016 ONSC 704
COURT FILE NO.: 11-31856
DATE: 2016/02/02
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
FRANK MATHESON
Paul Lewis for the Plaintiff
Plaintiff
- and -
ERIE MUTUAL FIRE INSURANCE COMPANY
Paul Hosack for the Defendant
Defendant
HEARD: January 26 and 27, 2016
A. J. GOODMAN J.
REASONS FOR JUDGMENT
Introduction:
[1] This action involves a claim by the plaintiff, Frank Matheson (“Matheson”), alleging that he was constructively dismissed from his employment with the defendant company, Erie Mutual Fire Insurance Company (“Erie Mutual”). The plaintiff also seeks damages for a two-month period of unpaid commissions from 1995.
[2] This was a short trial. Two witnesses testified, the plaintiff, and John Dunton (“Dunton”), President and CEO, on behalf of the defendant.
[3] For the reasons that follow, the plaintiff’s action is dismissed.
The Facts:
[4] The plaintiff is a 68-year-old individual residing in the City of St. Catharines.
[5] Erie Mutual is a company incorporated pursuant to the laws of the Province of Ontario, having its registered head office located in Dunnville, Ontario. Erie Mutual carries on business as a mutual insurance company.
[6] Matheson commenced employment with Erie Mutual on or about October 1, 1995. At all times, Matheson was employed by Erie Mutual as a captive sales agent. In this capacity, Matheson was responsible for selling automobile, home, farm, personal and commercial insurance on behalf of Erie Mutual.
[7] On July 14, 2011, Matheson was called to a meeting by Dunton. The meeting was attended by Matheson, Dunton, the Executive Committee of the Board of Directors – Richard Egger, Warren Burger, Roydon King, Mark Moesker and the Executive Secretary to the Board – Jean Bethune. Mr. Burger advised Matheson of Erie Mutual’s intention to alter Matheson’s entitlement to receive commission income effective September 1, 2011. The principal proposed change was that Matheson’s entitlement to receive commission income from employment with Erie Mutual would have been reduced by 30%.
[8] During the course of the July 14, meeting, Mr. Egger requested that Matheson execute an employment agreement that had first been presented to Matheson in 2006. Matheson claimed that he refused and continued to refrain from executing the 2006 Employment Agreement (“2006 Agreement”).
[9] By letter dated July 21, and followed by succeeding correspondence of August 25, 2011, Matheson’s counsel advised Erie Mutual that the employer’s decision to reduce Matheson’s entitlement to receive commission in accordance with Mr. Burger’s July 14, 2011 request constituted constructive dismissal. Plaintiff’s counsel further advised Erie Mutual that Matheson would resign his employment with Erie Mutual and would take legal action against the company.
[10] On August 23, 2011, Erie Mutual sent a letter purported to provide Matheson with working notice of the termination of his employment. Erie Mutual advised Matheson that his employment with Erie Mutual would come to an end on February 28, 2013. Matheson was further advised that:
During that time period until the termination of your employment, you are to continue to fulfill all of your duties as a full-time captive sales agent exclusively for Erie Mutual in compliance with your terms of employment referred to in your 1995 and 2006 Employment Agreements and to act in the best interests of the company.
[11] In the same letter, Matheson was also advised that he would continue to receive his commission income and benefits as they existed as of January, 2011 until his date of termination.
[12] According to tax records filed, during Matheson’s last complete year of employment with Erie Mutual, he received sales commissions in the amount of $169,895.49. He enjoyed medical, dental, life insurance, short term and long term disability benefits. Matheson also fully participated in Erie Mutual’s pension plan.
[13] Subsequent to the termination of his employment, Matheson commenced a search for alternate employment. Despite these efforts, Matheson was unsuccessful and remained unemployed.
ISSUES:
[14] The issues to be determined are as follows:
Did Erie Mutual's course of conduct constitute constructive dismissal of Matheson?
Is Matheson owed two months of remuneration for missed compensation in 1995?
What was the required period of notice of termination?
What are the damages?
PositionS of the Parties:
[15] Matheson pleads that Erie Mutual’s decision to provide him with working notice of the termination of his employment was nothing more than a disingenuous attempt on his employer’s part to pressure or persuade him into resigning his employment.
[16] In response to Erie Mutual’s decision to provide Matheson with working notice of the termination of his employment and in response to his employer’s attempt to impose those terms referenced in the 2006 Agreement, Matheson advised Erie Mutual that he had been constructively dismissed and proceeded to resign. Matheson submits that there was a complete breakdown in the employment relationship such that Matheson could no longer be expected to continue to provide service to Erie Mutual.
[17] In the alternative, Matheson pleads that Erie Mutual’s decision to attempt to impose those terms as contained in the 2006 Agreement was the culminating event in a series of events which resulted in Matheson’s constructive dismissal.
[18] During the period commencing July 14, 2011, through to August 26, 2011, Erie Mutual engaged in a course of conduct designed to force Matheson to resign his employment. Erie Mutual’s conduct was high-handed, indicative of bad faith, and constituted a separate actionable wrong for which Erie Mutual is liable.
[19] Matheson submits that it was an implied term of his contract of employment that Erie Mutual provide him with reasonable notice, or termination pay in lieu of notice. Matheson pleads that the period of notice to which he is entitled to is an amount equal to 24 months’ wages.
[20] Further, on or about October 1, 1995, Matheson commenced employment with Erie Mutual. Matheson pleads that he was not paid commission income for the service he provided to Erie Mutual during the initial two-month period of his employment.
[21] Erie Mutual states that the terms of the 2006 Agreement were not a fundamental and unilateral change to the terms of Matheson’s employment. The plaintiff had in fact agreed earlier to the essential terms of that agreement and had been operating under the terms of that agreement since 2006 taking full advantage of the significantly increased benefits payable to him under that agreement. Erie Mutual adds that Matheson fully accepted and acquiesced, expressly or implicitly, to the terms of that 2006 Agreement and is now estopped from asserting that he is not bound by those terms.
[22] Erie Mutual submits that at all times it acted in good faith and in a timely manner. Erie Mutual duly considered and accepted Matheson’s demands put forth in his letters, and the company agreed to continue to calculate and pay Matheson’s entitlement to commission income in accordance with its current practice that was in place. Erie Mutual did so without making any changes to the terms of employment of any other employee similarly situated. Accordingly, Erie Mutual submits that there was neither an interruption nor an intention to affect Matheson’s commission rate or employment situation.
[23] Erie Mutual submits that it was surprised to learn of Matheson’s resignation based on constructive dismissal and disputes that there was a toxic work environment. Nonetheless, Erie Mutual submits that they provided Matheson with more than a reasonable amount of notice for a termination date effective February 28, 2013, a period of 18 months. Accordingly, Erie Mutual submits that it fulfilled all of its obligations to Matheson of providing reasonable notice of the termination of the employment contract.
ANALYSIS:
[24] In Farber v. Royal Trust Co., 1997 CanLII 387 (SCC), [1997] 1 S.C.R. 846, at para. 34, Gonthier J. stated:.
A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer's part to provide damages in lieu of reasonable notice.
[25] It is settled law that constructive dismissal also occurs where the employer's conduct amounts to an effective repudiation of the entire employment relationship, rather than a change in specific terms of the employment contract. Such repudiation occurs where the employer's conduct creates a hostile work environment which renders the employee's continued employment intolerable.
[26] Once it has been objectively established that a breach has occurred, the court must turn to the second step of the analysis and ask whether, "at the time the [breach occurred], 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" (Farber, at para. 26). A breach that is minor in that it could not be perceived as having substantially changed an essential term of the contract, does not amount to constructive dismissal.
[27] In cases in which this branch of the test applies, constructive dismissal consists of conduct that, when viewed in the light of all the circumstances, would lead a reasonable person to conclude that the employer no longer intended to be bound by the terms of the contract. The employee is not required to point to an actual specific substantial change in compensation, work assignments, or terms of employment that on its own constitutes a substantial breach. The focus is on whether an employer's conduct manifests an intention to no longer to be bound by the employment contract. The employee has the choice of either accepting that conduct or changes to the employment relationship made by the employer, or treating the conduct or changes as a repudiation of the contract by the employer and suing for wrongful dismissal.
[28] Each case must be decided on its own facts. The test for whether the employer's conduct amounts to constructive dismissal is an objective one, considered from the perspective of a reasonable person in the same situation as the employee.
[29] The burden rests on the employee to establish that he or she has been constructively dismissed. If the employee is successful, he or she is then entitled to damages in lieu of reasonable notice of termination.
[30] Matheson claimed damages for constructive dismissal based on Erie Mutual’s conduct in that the defendant’s conduct alleged amounted to repudiation of his employment contract. The course of conduct relied on by Matheson as constituting constructive dismissal commenced with the 2006 Agreement
[31] Erie Mutual’s July, 2011 approach to Matheson requesting that there be changes to the commission structure was not acceptable to the plaintiff.
[32] Matheson was a senior, successful, well respected, "outside" sales representative, who called on customers and maintained a home office. Infrequent trips to head office were made on an annual basis, in the range of eight to 10 times per annum.
[33] In common with other outside sales personnel, Matheson earned commissions based on a percentage of the premiums paid for insurance by his clients. The book of business was always owned by the defendant.
[34] A meeting was called by the defendant to discuss the proposed changes to the commission rates for all sales persons. This meeting was conducted on an individual basis. Erie Mutual’s decision for a reduction in the commission rates offered to its sales agents was neither canvassed to any extent, nor is it material.
[35] Following the August 23, 2011 resignation letter, the Board of Directors sent a letter to the plaintiff dated Sept 7, 2011. Erie Mutual offered to meet immediately with Matheson to discuss the concerns Matheson may have with regards to the “toxic work environment” referred to in Matheson’s lawyer’s letter of August 26, 2011. Erie Mutual expressed to Matheson that the allegation was a grave concern to the employer and indicated that they hoped to meet to discuss these concerns so that the parties could find some resolve to the issues. Erie Mutual made it clear that Matheson’s employment status continued as a non-salaried captive agent with all terms of employment unaltered, and asked for his confirmation by September 12, 2011 of his decision to continue all of his duties and responsibilities. Matheson declined to meet with Erie Mutual on any basis.
[36] I have heard and considered the evidence and submissions of counsel.
[37] I do not find Matheson to be a credible witness. In examination-in-chief, his evidence was specked with conjecture. Little or no documents were filed in support of most of his claims. Those documents that were filed as exhibits were lacking in specificity or probity. Testimonial references to various conversations with other persons over the years, in particular from 1995-2006, were without substantiation or unclear.
[38] In cross-examination, the plaintiff was repeatedly evasive and unresponsive to numerous questions posed by defendant’s counsel.
[39] The plaintiff was also inconsistent with his testimony suggestive of being somewhat careless with the truth. For example, at his discovery, Matheson agreed that there was no acrimony with the defendant and he had a good working relationship with Dunton. Such was not his position at trial. At discovery, Matheson acknowledged that he thought his commission salary would be exactly the same if he had stayed with Erie Mutual. His evidence at trial was contradictory. Matheson’s references to what calls he made or did not make to various prospective employers subsequent to his resignation was internally inconsistent and contrary to his discovery examination.
[40] On the other hand, I find Dunton’s testimony to be entirely credible and reliable. Dunton had a clear and consistent recollection of the matters about which he provided evidence, and he provided a straightforward account of events, without apparent embellishment. Indeed, I preferred the evidence of Dunton when it differed from that of Matheson.
[41] In respect of the claim for two months missed remuneration from 1995, Matheson appeared to be reconstructing events, without a clear recollection of what happened and when it happened. He initially denied in a somewhat confusing manner, later admitted about being advised about his disentitlement to remuneration for his initial period of employment with Erie Mutual, albeit he attempted to explain it away. Matheson’s evidence on this entire issue was wholly inconsistent.
[42] I accept Denton’s testimony enforced by the plaintiff’s responses put to him in cross-examination that Matheson was indeed apprised and well aware that he would not be compensated for his initial two months of engagement. I accept that Matheson was provided with a book of business by Erie Mutual to start him off. Moreover, Matheson did not raise the issue for nearly a decade. I also do not accept the explanation, if any, for the plaintiff’s tardiness or delay in bringing this issue to Erie Mutual’s attention. I reject the assertion that Matheson was promised this compensation. This claim is denied.
[43] It is disputed at trial that Erie Mutual’s proposed amendment to the termination provision in Matheson's employment contract constituted a fundamental change to the terms of the contract.
[44] According to the prevailing jurisprudence, an employer has the right to impose a fundamental change to a contract, and if so, it was required to give reasonable notice of the change to the employee. Erie Mutual submits that they met this requirement by providing 18 months’ notice on August 23, 2011.
[45] Matheson testified that he had no intention of resigning until age 70, and he believed that he was dismissed unilaterally.
[46] Having considered all of the evidence adduced at trial, I have no hesitation in finding that Matheson has not satisfied his onus of establishing constructive dismissal by Erie Mutual. On these facts, it was Matheson who had ended the employment relationship.
[47] I do not find that the 2016 Agreement provided for a fundamental change to the employment arrangement. Recall that the 1995 agreement was effectively silent with respect to termination. At law, the employer could have terminated the employee at any time without cause but with reasonable notice. The plaintiff does not dispute this fact. Clause 8.4 does not advance a fundamental change, rather it spells out the obligations of the parties in accordance with the prevailing laws at the time. Moreover, the 1995 agreement provided that the employer could fix the agent’s remuneration from commission from time to time. Clause 4.1 and 4.2 do not provide for a fundamental change. The plaintiff does not dispute that the rates could be altered by the employer. According to the plaintiff, the other significant change in 2006 was the insertion of the non-solicitation clause.
[48] If I am wrong about the changes to the 2006 Agreement, and even assuming for the moment that the 2006 Agreement constituted a fundamental change in the relationship which could give rise to constructive dismissal; with regards to the events of July and August 2011, I accept Dunton's evidence that Matheson duties and responsibilities remained substantially the same. Moreover the defendant’s letter of termination specifically spelled out that the rates of commission were to be maintained at the level of January 2011. I reject Matheson’s conjecture that he was going to suffer a 30% commission reduction.
[49] It seems entirely illogical to me why Matheson would unilaterally and doggedly turn down Erie Mutual’s offer to continue to discuss the situation, with or without counsel, or continue his employ with the company on the same terms and conditions; albeit, I recognize that the “non-solicitation clause” was a potential issue.
[50] If the August, 2011 letter or the 2006 Agreement was a repudiation of the 1995 employment contract, in any event, it is clear that Erie Mutual provided reasonable working notice in accordance with the jurisprudence. This was rejected out-of-hand even after the defendant’s letter of Sept 7, 2011.
[51] I am satisfied that this alleged conduct or activity by the defendant is wholly distinguishable from the facts as found in Wronko v. Western Inventory Service Ltd., 2008 ONCA 327, [2008] O.J. No. 1589 (C.A.), relied upon by the plaintiff.
[52] I also reject Matheson’s assertion that the atmosphere at Erie Mutual was toxic. I do not consider the contents of Erie Mutual’s notice of termination letter, taken as a whole, to be needlessly provocative or demeaning. The defendant’s request to have their captive sales agents and in particular, Matheson, sign the 2006 agreement was not harassing or vexatious. The corporate atmosphere was far from toxic. Overall, I do not find that the defendant acted in bad faith or that any of the employer’s actions were intended to humiliate or belittle the plaintiff. It appears that it was Matheson who, for whatever reason, took an antagonistic approach towards Erie Mutual.
[53] In fact, I accept that Matheson implicitly accepted the 2006 Agreement. In referring to Matheson’s lawyer’s December 7, 2006 letter, the plaintiff did not follow through despite Erie Mutual’s counsel response letter of January 31, 2007. I am able to draw the reasonable inference that Matheson acquiesced to the terms and conditions of the 2006 Agreement. It is clear that Matheson took advantage of the 2006 Agreement, with the addition of substantial employee benefits, a pension plan and the elimination of the need for sales agents to collect premiums from their clients. Yet, at the same time, the plaintiff complains about the other aspects of the 2006 Agreement regarding termination, and a period of non-solicitation of clients. I do not accept Matheson’s explanation for why he accepted only certain parts of the 2006 Agreement.
[54] Matheson’s view that to return to work would entail an acceptance of the revised terms of his employment contact. Yet, the 1995 agreement provided that Erie Mutual had the unilateral right to fix the commission rate. There was no loss of status. The only substantial change was the insertion of the non-solicitation clause following Matheson’s departure from Erie Mutual. While Dunton testified that this clause is not generally followed in the industry, it was still a term of the 2006 Agreement. That being said, in my view it was not a fundamental change to the employee-employer relationship.
[55] Given the initial agreement and the rights of the employer to manage its affairs, including the commission rates, I cannot fathom why the plaintiff protested about these changes other than to claim that he was constructively dismissed by the prospect of a substantial reduction of salary. It may be true that a 30% reduction in salary can give rise to a fundamental change in the employee-employer relationship and lead to a finding of constructive dismissal. However that circumstance never arose and is not established on the facts here.
[56] Accordingly, I find that Matheson has not established that Erie Mutual’s conduct taken as a whole was likely to cause a reasonable person in the same position as the plaintiff to find that continued employment with Erie Mutual was intolerable, which would have allowed Matheson to treat the employment relationship as at an end. The plaintiff was not constructively dismissed.
REASONABLE NOTICE PERIOD:
[57] The oft-quoted authority on this issue is found in the case of Bardal v. The Globe and Mail, 1960 CanLII 294 (ON SC), [1960] O.J. No. 149, 24 D.L.R. (2d) 140.
The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the employee, the age of the employee and the availability of similar employment, having regard to the experience, training and qualifications of the employee.
[58] Although I have determined that there is no constructive dismissal, it is incumbent on me to calculate the required notice period and damages.
[59] Various courts have properly taken a flexible approach in determining whether the employer's conduct evinced an intention no longer to be bound by the contract. There are two branches of the test that have emerged. Most often, the court must first identify an express or implied contract term that has been breached, and then determine whether that breach was sufficiently serious to constitute constructive dismissal: J. R. Sproat, Wrongful Dismissal Handbook (6th ed. 2012), at p. 5-5.
[60] The evidence at trial was clear that Matheson’s position would be more properly described as a senior outside sales position, but not a management position.
DUTY TO MITIGATE:
[61] In Evans v. Teamsters Local Union No. 31, 2008 SCC 20, [2008] 1 S.C.R. 661, at para. 30 the Supreme Court of Canada stated:
This Court has held that the employer bears the onus of demonstrating both that an employee has failed to make reasonable efforts to find work and that work could have been found (Red Deer College v. Michaels, 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324). 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).
[62] The authorities provide that the onus is on the employer. According to Erie Mutual, even if Matheson was constructively dismissed, he suffered no damages since he failed to mitigate his damages by failing to continue to work with the defendant on effectively the same terms and conditions prior to his resignation.
[63] Consistent with the principles set out by the Supreme Court of Canada in Evans v. Teamster Local Union No. 31, the question to be determined is whether a reasonable person would have remained at Erie Mutual for the balance of the notice period, taking into account the critical element that an employee is not "obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation". An employee’s obligation to mitigate by remaining with his/her employer for the period of working notice is described as “efficient breach”.
[64] Courts ought not to discourage efficient breach: Bank of America (Canada) v. Mutual Trust, 2002 SCC 43. See also Farwell v. Citair Inc., 2014 ONCA 177, at paras 19-21.
[65] I agree with Erie Mutual that Matheson would have been obliged to mitigate his damages by continuing to work for Erie Mutual until the end of the notice period, with the result that his damages would have been nil. In this regard, he was to be paid the same compensation, his commission remaining static. His working conditions were substantially no different than previously and there was no fundamental alteration to the terms of the relationship.
[66] Moreover, I accept Dunton’s testimony that the working relationship between Erie Mutual and Matheson was challenging but not to the point of being strained by recent events. In any event, I specifically reject the bald assertion of any toxic environment. Quite the contrary. As mentioned, Matheson was never treated in a demeaning or humiliating manner and he could not point to any cogent circumstances giving rise to this alleged level of hostility.
[67] The plaintiff’s mitigation argument presupposes that the employer has offered the employee a chance to mitigate damages by returning to work. To trigger this form of mitigation duty Erie Mutual was therefore obliged to offer Matheson the clear opportunity to work out the notice period after he had offered his resignation. Such is the case here.
[68] I accept the evidence that Erie Mutual extended a clear opportunity to continue the plaintiff’s employment with a working notice. Moreover, I have considered the other evidence adduced by the plaintiff as to efforts to find suitable employment.
[69] I also agree with the defendant that the brief unsolicited two-line emails sent out and the one-page resume, with unsolicited expectations of a starting salary of $150,000.00, and the nature of the entire effort was abysmal. No letters or follow-up letters were sent, no or few substantial phone calls to prospective employers were made, and the limited period of time that this job search effort continued was minimal. Further, while I appreciate the challenge facing the plaintiff due to his age, Matheson applied for numerous positions to which he was not even qualified by virtue of licensing requirements. Frankly, I am persuaded that this entire exercise was not truly designed to seek out viable, alternative employment. The plaintiff failed to mitigate his damages
[70] In my view, it is not reasonable for an employee to refuse to communicate with an employer who is trying to reconstitute the relationship or continue or re-engage the employee, and just to treat the contract as unequivocally repudiated.
[71] I accept that even if Erie Mutual has a right to make a unilateral and fundamental change to a term of an employment contract, it may do so upon providing reasonable notice of that change to the employee. With 18 months of working notice being offered, this constituted reasonable notice. In my view, and on the facts and circumstances of this case, the reasonable person would have remained at Erie Mutual for the balance of the working notice period.
[72] Erie Mutual concedes that if damages are to be awarded, they ought to be higher than 12 months but less than the 24 months claimed by the plaintiff. I agree. Although I find in favour of the defendant, in my opinion, the appropriate notice period for termination in this case is 16 months. In reaching that conclusion, I take into account that Matheson was approximately 62 years old when he left Erie Mutual and had been there for 16 years in a senior sales position. In this regard, I considered his valued experience and contacts as positive factors that would assist him in obtaining an equivalent senior sales position with another employer, albeit his age at the time would have been a detrimental factor.
OTHER ISSUE:
[73] In his pleadings, Matheson submits that Erie Mutual failed to provide Matheson with his entitlement to termination pay and severance under the Employment Standards Act, 2000. Matheson pleads that Erie Mutual’s failure to provide him with his statutory entitlement to termination pay and severance under the Employment Standards Act, 2000 constitutes bad faith. However, when questioned by this Court, this issue was not advanced in argument before me.
CONCLUSION:
[74] For all of the aforementioned reasons, the plaintiff’s action is dismissed.
[75] If the parties cannot agree on the issue of costs, I will consider brief written submissions. These cost memoranda shall not exceed three pages in length, (not including any bill of costs or offers to settle). The defendant shall file its costs submissions within 15 days of the date of this judgment. The plaintiff may file his costs submissions within 15 days of the receipt of the respondent’s materials. The defendant may file a reply within five days thereafter.
A. J. Goodman J.
Date: February 2, 2016
CITATION: Matheson v. Erie Mutual, 2016 ONSC 704
COURT FILE NO.: 11-31856
DATE: 2016/02/02
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
FRANK MATHESON
Plaintiff
- and -
ERIE MUTUAL FIRE INSURANCE COMPANY
Defendant
REASONS FOR JUDGMENT
A.J. Goodman J.
DATED: February 2, 2016