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Employee on maternity leave was constructively dismissed when employer took steps to dissolve operations

In Lewis v. Terrace Tourism Society, 2010 BCCA 346, the majority of the BC Court of
Appeal found that the Executive Director ("ED") of the Tourism Terrace Society (the "Society") was constructively dismissed when the Society took steps to dissolve its operations while she was on maternity leave.

Background

The ED commenced her employment with the Society in May 2004.

At the end of 2006, she started a maternity leave that was scheduled to run until January 2008. An interim ED was hired to replace her.

Two weeks after the ED commenced her maternity leave, the Society determined that it was in dire financial straits. It took several immediate steps to deal with the situation, including laying off the interim executive director and removing the ED's signing authority on its bank accounts.

A month later, the Society passed a "dissolution" resolution in which it voted to:

  • give its assets to the Terrace Chamber of Commerce;
  • close the office and website and cease all operation; and
  • terminate the ED's position.

Although the Society recognized that it owed severance to the ED and engaged in some discussions with her in this regard, no severance payment was immediately offered.

In March 2007, the ED commenced a Small Claims wrongful dismissal lawsuit against the Society.

In April 2007, the Society advised the ED that her employment was terminated for just cause because of her Small Claims lawsuit.

In July 2007, the ED commenced a BC Supreme Court wrongful dismissal/constructive dismissal lawsuit against the Society.

Trial Judge's Decision

In a decision issued in March 2008 the trial judge dismissed the ED's lawsuit on the basis that:

  • The ED had not been constructively dismissed when the Society took steps to wind up its operations; and
  • By filing the Small Claims lawsuit, the ED had provided the Society with just cause to terminate her employment.

Further to this, the trial judge specifically found that the Society intended to present the ED with a severance offer but before it could do so, the Executive Director "took the pre-emptive strike and sued" (at para. 43). 

The ED appealed the trial judge's decision.

Court of Appeal - Dissent

In his dissenting reasons, Justice Frankel dismissed the appeal, ruling that:

  • A review of the pregnancy/parental leave provisions in the BC Employment Standards Act leads one to conclude that, "In effect, the core obligations of an employment relationship-the provision of services in exchange for remuneration-are held in abeyance during the leave period" (para. 28).
  • "During the leave period, the employment relationship can best be described as a shell. When [the ED's] leave ended, she was entitled to recommence being the Society's executive director or be given a comparable position, unless prior to that time she had been properly terminated. It is in this context that the question of her alleged dismissal must be considered" (para. 29).
  • The nature of the changes being made to the operations of the Society had no immediate effect on the ED's employment status, and the Society did not breach its obligations to the ED prior to when she commenced the Small Claims lawsuit.
  • The commencement of the Small Claims lawsuit was "incompatible" with the ED's continued employment and, as such, amounted to just cause for dismissal.

Court of Appeal - Majority

The majority of the Court allowed the appeal, ruling that:

  • The ED's legal right under her contract of employment to reasonable notice on termination of her position was not altered when she commenced her maternity leave. On this point, the majority specifically stated:

I know of no authority that suggests that the legal rights of a terminated employee on leave are suspended or varied.  To the contrary, for example, the Employment Standards Act... s. 67(1)(a) expressly protects an employee on leave from being dismissed with notice that coincides with the period of leave.  Nor is there any rationale for common law principles to be applied differently to employees who are terminated while on leave (para. 45).

  • The ED's job was clearly at an end when the Society resolved to cease operations and terminate the position of ED.
  • The Society did not provide any notice to the ED of her termination, and it never offered reasonable severance in lieu of reasonable notice.
  • The Society's position - that that "their actions could not amount to constructive dismissal because the ED was on leave, and it had not repudiated the employment contract because it had not provided notice or offered severance, though it intended to pay severance" - stands the law "on its head" and cannot be maintained" (para. 49).
  • In those circumstances, the ED did not repudiate her employment contract by filing a lawsuit to have the court declare her legal rights. Rather, her employment contract had been repudiated by the Society. On this point, the majority specifically stated:

In these circumstances, where all of the indicia of the employment relationship had ended with the employer's cessation of business, it would constitute a "trap for the unwary" to hold that an employee cannot sue to have a court declare her rights without risking a finding that she had, by doing so, repudiated whatever vestige of the employment contract might remain (para. 55).