Landmark Decision on Certification of ESA Class Actions and Constructive Dismissal

Ontario’s Divisional Court has upheld a lower court ruling refusing to certify a class action for statutory notice and severance pay, and in the process provided helpful guidance interpreting an earlier Ontario Court of Appeal decision on constructive dismissal.

In Kafka v. Allstate Insurance Company of Canada (“Kafka”), two representative plaintiffs argued that unilateral changes imposed by Allstate to its business model, caused the constructive dismissal of approximately 100 Allstate agents.  They asserted that it was appropriate to proceed by way of class action (as opposed to individual actions) because the changes were imposed across the board to all agents and because the Employment Standards Act (ESA) provides a formulaic model for determining the applicable notice and severance damages (the employees claimed ESA notice and severance, not common law reasonable notice).

The lower court held that, although these two factors of commonality existed, the court would have had to evaluate each agent’s individual circumstances to determine if the changes constituted “fundamental” changes to their individual terms and conditions of employment – which is the standard for finding a “constructive dismissal,” and whether, by words or conduct, each agent had condoned or rejected the proposed contractual change.  In light of these significant issues that would have to be adjudicated individually, the court held that a class proceeding was not appropriate.  The Divisional Court agreed.

An interesting aspect of this case is how it buffers the stark impact of the Ontario Court of Appeal’s 2008 decision in Wronko v. Western Inventory Service Ltd., (“Wronko”).  Our readers may recall that in Wronko, the employer gave the employee 24 months’ notice that a generous, 24 month, termination provision in his contract would be reduced to barely more than ESA minimum standards.  Mr. Wronko repeatedly advised that he did not agree to the change, but continued to work until, true to its word, at 24 months the employer presented him with a new contract containing the amended provision and told him to sign it or he had no job.

The Ontario Court of Appeal found that Mr. Wronko had not condoned the change by continuing to work for 24 months – because he repeatedly expressed his rejection of the change.  Moreover, the court ruled – to the surprise of many employers – that 24 months’ notice of the change was not the same as 24 months’ notice of termination.  As a result, Mr. Wronko was not given notice of termination until he was presented with the ultimatum and the revised contract was unilaterally imposed.  He was still entitled to the original, 24 months’ pay in lieu of notice in his original contract.

In Kafka, the Divisional Court upheld the lower court’s finding that the period from which to determine whether or not the employee condoned or rejected the contractual change within a “reasonable period of time” began on the date on which the employer announced the change.

In other words, following Wronko, if an employee rejects an anticipated contractual change within a reasonable period of time after it is announced, he cannot be said to have condoned the change by continuing to work out the notice period and would still be entitled to fresh notice or pay in lieu of notice of termination after the change is implemented.  Of course, under those circumstances a prudent employer should strongly consider providing actual notice of termination when the rejection is communicated.

If, however, an employee receives notice of an anticipated contractual change and fails to object within a reasonable period of time after notice is given, even before the change is implemented, that employee may not be able to claim constructive dismissal when the change is implemented.

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