Before: The Honourable Madam Justice Humphries

Reasons for Judgment

Counsel for the plaintiff	J.D. West
Counsel for the defendant	G. Edwards
Date and Place of Trial/Hearing:	April 23, 2008; June 6, 2008
	Vancouver, B.C.

[1] The plaintiff, Mr. Davies, claims he was terminated from his employment and sues for damages in lieu of notice. He applies for judgment pursuant to Rule 18A. The defendant takes the position that the matter is not suitable for disposition on a summary trial, at least at this early stage when discoveries have not been done. After the hearing, I ordered a limited cross-examination of the parties. I am of the view that I can fairly find the facts necessary to dispose of this action.

[2] I will deal first with the evidence as set out in the affidavits.

[3] The plaintiff, 63 years old, was employed as a debt collector by the defendant. His employment began on April 1, 2001 and was formalized in a written agreement dated July 27, 2001.

[4] On September 25, 2006, the plaintiff was at work. Mr. McCann, president of the defendant company, asked to meet with him. Mr. Davies and Mr. McCann have each filed affidavits respecting this meeting. Their evidence conflicts.

[5] Mr. Davies says he was told by Mr. McCann that the defendant company had experienced a reduction in business as the result of a loss of a major client, and that Mr. Davies would be placed on “temporary lay-off” because of lack of work. He deposes that Mr. McCann told him he did not know how long Mr. Davies would be on temporary lay-off, but he would have a better idea in a few weeks. He hoped the layoff would end sooner, rather than later. He told Mr. Davies to call him. Mr. Davies says he asked to be allowed to work to the end of the month, but he was told not to return to work the next day. Mr. Davies says he was completely surprised by this lay-off and expressed his concern at being “financially stranded” and “dumped.”

[6] Mr. Davies deposes that he discreetly cleaned out his desk, spoke to the office administrator about employment insurance benefits, and left.

[7] Mr. McCann stated in his affidavit that he left the staff reductions to the last minute, hoping business would improve, but he had no alternative but to cut costs. He placed Mr. Davies, who had the least seniority, on temporary lay-off, and deposes that Mr. Davies, while disappointed, expressed no surprise, said he had expected it, and was surprised it had not come sooner. He says that he and the plaintiff discussed their mutual desire to have the plaintiff remain with the company long-term. They discussed a plan of weekly communication, bringing the plaintiff back and having another staff member placed on temporary lay-off if the situation went on too long. Mr. McCann deposed that the business was already showing signs of improvement by the date of the meeting.

[8] Mr. McCann deposes that the plaintiff finished the working day and left his effects at the work station.

[9] Mr. McCann states that he was shocked to receive a letter a week later from legal counsel retained by the plaintiff.

[10] Mr. McCann recalled the plaintiff to work on November 20, 2006. The plaintiff would have returned at the same salary and status. The plaintiff ignored the offer. The plaintiff deposes that he did not want to be in a situation where he could be laid off again. He says he felt humiliated by the way he had been treated on September 25, 2006. The writ and statement of claim were filed on November 30, 2006.

[11] Mr. McCann deposed that the defendant continued Mr. Davies’ medical benefits until it was clear he would not be returning to work.

[12] The plaintiff’s lawyer conceded that the conflict in the evidence over the conversation on September 25, 2006 might well be relevant to the aspect of mitigation, and suggested that, if the court was unable to decide the facts relevant to mitigation, the court could at least make a finding on liability. Such a divided approach is not advisable. If the conflict over the meeting were essential, it would have to be resolved either through a referral to the trial list or at the least by cross-examination on affidavits.

[13] To that end, I ordered cross-examination of Mr. Davies and Mr. McCann on their affidavits on the issue of the meeting. The cross-examination took place before me on June 6, 2008. At the close of that hearing, counsel for the plaintiff mentioned the decision of the Supreme Court of Canada in Evans v. Teamsters Local Union No. 31, 2008 SCC 20, 65 C.C.E.L. (3d) 1 which had been handed down since the first hearing. Counsel were to advise the registry if they wished to make submissions based on that case, or on the matters that came out in cross-examination, but nothing further has been forthcoming.

[14] I will now deal with the evidence that emerged during the cross-examination of Mr. Davies and Mr. McCann.

[15] Mr. Davies had worked for the defendant company in the past when it was run by Mr. McCann’s father-in-law, and he had also run his own collections business. He has 40 years experience in the area. Mr. Davies appeared to be bluff, proud, plain-spoken, somewhat confrontational and unlikely to let a perceived affront go without a reaction.

[16] Mr. McCann had taken the collections business over from his father-in-law. On the stand, he was quiet, precise, and businesslike. He claimed to find Mr. Davies engaging and somewhat of a character, and to value his experience in the collections business. He agreed that Mr. Davies asked to be able to work to the end of the month, but Mr. McCann had chosen the date of September 25 for his meeting with Mr. Davies because bonuses in the company were calculated as of the 25^th day of each month. Mr. Davies’ medical benefits were not terminated during the “lay-off.”

[17] The two differed on whether Mr. Davies had any notion that temporary lay-offs might be in the offing. Mr. McCann said the potential for such lay-offs had been discussed over the preceding months, and that Mr. Davies had been part of the discussions. Mr. Davies at first testified he had heard nothing about it, although he was aware prior to the meeting of September 25, 2006 of the financial difficulties of the company. However, it is clear that Mr. Davies was aware of how serious the problems were for the company, and in fact several weeks prior to the meeting had written Mr. McCann a sarcastic and provocative letter regarding his pay cheque, the troubles meeting payroll that he said Mr. McCann had mentioned to him, and the “doom and gloom” in the company.

[18] Mr. McCann testified that he was of the view that he did have the right to lay off employees temporarily, but that when he recalled Mr. Davies on November 20, 2006, he had no thought in his mind of laying him off again in the future. He received no response to his recall offer; the writ and statement of claim were filed ten days later. He deposed that the business recovered in 2007 and is now short of collections officers.

The positions of the parties

[19] The plaintiff relies on the written employment agreement. Clause 3 provides:

(a) Subject to the provisions of this paragraph, the term of this agreement shall be indefinite.

…

[19] Either the Employer or Davies shall be entitled to terminate the services of Davies hereunder without cause and for any reasons by giving one (1) months prior written notice of such termination and an additional one (1) months notice for every year of service thereafter.

Clause 7(b) provides:

(b) Davies covenants and agrees with the Employer that he will not during the term of this agreement and for a period of two years from the date of his services hereunder are terminated for whatever reason, directly or indirectly in any manner whatsoever, including without limitation, either individually or in partnership or jointly or in conjunction with any other person or person, firm, association, syndicate, company or corporation, as principal, agent, shareholder or in any other manner whatsoever (other than as a shareholder, director, or officer, of the Employer) carry on or be engaged in or be concerned with or interested in or lend money to, guarantee the debts or obligations of or permit his name to be used by any person or persons, firm association, syndicate, company or corporation engaged in or concerned with or interested in any business competitive with the business carried on by the Employer within fifty miles of the boundaries of the City of Vancouver.

[20] Clause 16 provides:

This agreement and the terms hereof shall constitute the entire agreement between the parties with respect to all of the matters herein and shall not be amended, altered or qualified except by a memorandum in writing signed by all of the parties hereto.

[21] Mr. Davies says he is entitled to 6.5 months notice, with damages at the rate of his monthly salary of $4,200, pursuant to this clause. He says the defendant could not lay him off temporarily and that such an action is a termination of the contract.

[22] The plaintiff relies on the case of Collins v. Jim Pattison, (1995), 7 B.C.L.R. (3d) 13, 11 CCEL (2d) 74 (B.C.S.C.). There, the defendant argued that a temporary bona fide lay-off with the intention to recall when work is available is not a termination. The court held that the right to lay-off an employee must be found within the employment relationship, and in the absence of a contractual provision, there is no general right of an employer to temporarily lay-off its employees. There was no written contract between the parties in that case, so the court looked to industry practice regarding temporary lay-offs to determine whether there was an implied term in the contractual relationship that would allow such a lay-off. The court held that there was no evidence of such a practice and there was no implied term that the defendant could temporarily lay-off the plaintiff.

[23] The court in Collins relied on Archibald v. Doman-Marpole Transport Ltd. (4 October 1983), Vancouver C826793 [1983] B.C.J. No. 1284 (Q.L.) (B.C.S.C.), where the employee had been laid off temporarily due to lack of work, but had been advised that his re-engagement would be considered in the near future:

There is nothing more fundamental to a contract of employment than that the employee be employed and that he be paid for his services. Doman unilaterally changed those fundamental terms. One can appreciate the need for employers to cut down on management or supervisory staff during economic downturns, but the employee, subject to contractual arrangements, is still entitled to reasonable notice or payment in lieu of notice.

[24] In Archibald, the trial judge concluded that the defendant had actually admitted liability in the pleadings by stating that it had laid the plaintiff off temporarily due to lack of work, and expected him to return to work in the near future.

[25] The trial judge in Collins noted that the Court of Appeal had approved of Archibald in Haverstock v. Citation Industries Ltd., [1986] B.C.J. No. 402 (B.C.C.A.), and concluded that the lay-off of Mr. Collins constituted a termination of the contract of employment and a wrongful dismissal.

[26] The defendant says Mr. McCann and the plaintiff entered into an implied agreement for temporary lay-off, in their mutual interests of remaining associated in the long term.

[27] The defendant relies on Haverstock, supra, to say that only a lay-off for an indeterminate period is a termination of employment, and where the employee agrees to the lay-off, no cause of action lies. In my view, although the court in Haverstock did note that Archibald, supra, stood for the proposition that “the unilateral act of the employer in laying off the employee for any indeterminate period was a termination of the employment which the employee was entitled to treat as a wrongful dismissal,” they did not expressly state that only an indeterminate lay-off is a termination, nor is such a limitation implicit in the reasons. Haverstock itself is a case where there was no written contract, but there was clear agreement to the lay-off by the plaintiff. The court therefore found it unnecessary to decide whether the contract impliedly allowed temporary lay-offs. In fact, the trial judge, upheld by the Court of Appeal, found that the plaintiff himself had repudiated the employment contract because, while supposedly awaiting recall, he had gotten another job and sued the employer.

Discussion

[28] In the case at bar, there was a written agreement. It did not provide for temporary lay-offs. Clause 16 of the agreement provides that an alteration of the contract had to be in writing. The plaintiff points out that there was no written alteration of the contract, and in any event, there was no consideration for any amended agreement. There is no basis upon which to hold that there is an implied term that temporary lay-offs would be allowed.

[29] After hearing the cross-examination, I accept Mr. McCann’s evidence that he made it clear to Mr. Davies that it was his intention to maintain Mr. Davies’ services long-term, and they would discuss his potential return on a weekly basis, as business was already beginning to improve. However, Mr. McCann received a letter from Mr. Davies’ lawyers before the first week was up.

[30] Mr. Davies agreed in cross-examination that he did know the loss of the major client was likely to result in people being affected, and agreed he told Mr. McCann in the meeting that it was better that it was him being laid off rather than several others. However, I am unable to find that this attempt to put on a good front constituted an agreement to accept a temporary lay-off in the interests of maintaining his long-term employment.

[31] After hearing from the parties, I am satisfied that Mr. Davies did not agree to be laid off. He accepted the inevitable, notwithstanding that I am satisfied that Mr. McCann genuinely intended to make the lay-off as short as possible and intended to secure Mr. Davies’ long-term employment if he could.

[32] Mr. Davies did not agree to enter into another form of employment agreement. There was no contractual authority, express or implied, to allow a temporary lay-off. The plaintiff has established a termination of his employment without notice, and therefore an entitlement to damages.

Mitigation

[33] The next question is whether Mr. Davies failed to mitigate his damages by refusing to return to work when he was recalled by the defendant, and/or by unreasonably restricting his employment prospects by deciding to abide by the restraint of competition clause in the contract.

[34] Mr. Davies deposes that he looked for work in the construction area, was unable to find any because he is unskilled and suffers from a knee injury. His only income has been from unemployment insurance. The defendant says that Mr. Davies, by his conduct, has shown an intention not to work.

[35] The defendant refers to Collins, supra, on the issue of failure to respond to a recall. In that case, the judge ordered cross-examination on the affidavits on that particular issue because he was of the view that, if the plaintiff knew that the defendant was offering to re-employ him, he would be acting unreasonably in not accepting it. However, the court was unable to find that the defendant had communicated the offer of re-employment to the plaintiff.

[36] The defendant also argues that, having taken the position that his employment was terminated, Mr. Davies could not purport to rely on clause 7(b) of the agreement in which he agreed not to compete with the defendant for a period of two years from termination, within 50 miles of the boundaries of Vancouver, thus refusing to look for jobs in the area in which he was qualified.

[37] Mr. Davies argues that his refusal to respond to the recall notice was not unreasonable. He says if he returned, he would have been accepting the defendant’s position that it was entitled to lay him off, and could be subject to further lay-offs in the future without recourse.

[38] As for the non-competition clause, Mr. Davies says that until there has been a determination that his employment was terminated, he could not take the chance of breaching the agreement. Although employers who have breached contracts of employment have not been allowed to rely on non-competition clauses because the contract, once terminated, is at an end for all purposes (see, for example, General Billposting Co. Ltd. v. Atkinson, [1908-10] All E.R. Rep. 619) the employee should be entitled to await a determination by a court that the contract is at an end, rather than provoke action on the non-competition clause by the employer.

[39] According to the Supreme Court of Canada in Evans, supra, wrongful dismissal cases and constructive dismissal cases give rise to the same considerations in respect of the employee’s duty to mitigate his or her damages. In the absence of conditions rendering the return to work unreasonable, on an objective basis, an employee can be expected to mitigate damages by returning to work for the dismissing employer. The court referred to Farquhar v. Butler Brothers Supplies Ltd. (1998), 23 B.C.L.R. (2d) 89, (BCCA) at p. 94-95 in which the British Columbia Court of Appeal held:

The legal position in a constructive dismissal is that the employer commits a present breach or an anticipatory breach of a fundamental term of the employment contract, and the employee thinks it over and decides to accept the immediate termination of the contract. He must notify the employer of his decision to do so within a reasonable time. Often he does so simply by leaving the place of employment and failing to return, but he can do so in any other way. At that stage, the wrongful constructive dismissal is complete, and the obligation to mitigate arises.

…

The cases where there is an obligation to continue in the work force of the employer, under a new employment relationship, following a constructive dismissal, will roughly correspond with those cases where it is reasonable to expect the employment relationship to continue through a period of notice, rather than to end with pay in lieu of notice. There must be a situation of mutual understanding and respect, and a situation where neither the employer nor the employee is likely to put the other’s interests in jeopardy. But if there is such a situation, then a reasonable employee should offer to work out the notice period, either where notice is given or where there is a constructive dismissal and an offer of a new working relationship. [Emphasis added].

[40] Evans noted that in Farquhar, the British Columbia Court of Appeal had differentiated between wrongful dismissal and constructive dismissal, but ten years later, in Cox v. Robertson 1999 BCCA 640, 69 B.C.L.R. (3d) 65, (BCCA) held that even a wrongfully dismissed employee could be required to mitigate by accepting re-employment with his or her former employer on a temporary basis. The Supreme Court of Canada adopted that reasoning and stated:

Assuming there are no barriers to re-employment (potential barriers to be discussed below), requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself.

[41] On the issues of barriers to re-employment, the court referred to the type of factors discussed in Farquhar, such as an atmosphere of hostility, embarrassment or humiliation. The ultimate inquiry is what is reasonable.

[42] In Farquhar, the court held that the employee had no obligation to return to his former employment to mitigate his loss because he would return at a reduced salary and with a loss of director’s fees and his car.

[43] On the evidence before me, I am satisfied that there were no conditions arising out of factors such as humiliation, embarrassment, or hostility in the workplace that would render the return to work unreasonable, despite Mr. Davies’ statement to the contrary. I accept Mr. McCann’s evidence respecting the tenor of the meeting and his eagerness to have Mr. Davies return as soon as possible. As well, Mr. Davies was being asked to return at the same salary, at the same status and with the same benefits, which had never been cut off. I note the comments in Evans, supra, at para. 31 that individuals who are dismissed as a result of legitimate business needs will be required to mitigate by returning to the same employer more often than those employees who are terminated for some other reason.

[44] Nevertheless, Mr. Davies takes the view that to return in those circumstances would be to acquiesce to a reconstruction of the employment contract to allow for sequential temporary lay-offs. He says he was justified in both refusing to return to work on the basis that he had been terminated and the contract was at an end, and also in refusing to look for work in the field of collections for fear of contravening the non-competition term in clause 7(b) of the contract.

[45] Mr. Davies had several choices upon receiving the recall notice. He could have returned to work as a full-time employee, accepting the contractual consequences, if any, of his decision to return after having been laid off. Alternatively, he could have advised the defendant that he considered himself to have been terminated, and that he expected to receive proper notice. In that case, he could have offered to work out his notice period while looking for other employment. The third option was for Mr. Davies to do what he did: refuse to return to work, treat the contract as terminated, sue his employer, and purport to rely on the non-competition clause while making attempts to mitigate his damages.

[46] Mr. Davies’ view that to return to full-time employment would mean a re-writing of the essential terms of his employment contract was reasonable in law. He was entitled to treat the contract at an end, which he did by ignoring the recall notice and suing the defendant. In Haverstock, supra, similar actions were held to result in a dismissal of the claim because the employee had repudiated or terminated the contract himself. There, of course, the employee had agreed to the initial lay-off, which Mr. Davies did not. However, once having refused to respond to the recall notice and initiating proceedings, the contract was unquestionably terminated.

[47] In my view, based on the reasoning in Farquhar, once Mr. Davies unequivocally accepted the termination of his contract of employment, he should have offered to work out his notice period with the defendant. If he was determined to treat the employment contract at an end, as it seems he was, he had to take that reasonable step to mitigate his damages. The employer was recovering from the unexpected loss of a major client; they wanted Mr. Davies back full-time. It is extremely unlikely they would not have allowed Mr. Davies to work out the remainder of the notice period, had he offered, given their position that he had not been terminated in the first place and they wanted him back permanently.

[48] It is not reasonable for an employee to refuse to communicate with an employer who is trying to rehire him, refuse to respond to an offer of further employment, treat the contract as unequivocally terminated, sue the employer for having wrongfully terminated the contract, and then purport to rely on the contractual non-competition clause to deliberately reduce his ability to mitigate his damages. This course of conduct lends support to the defendant’s contention that Mr. Davies simply did not wish to work.

[49] In all the circumstances, I find that Mr. Davies has failed to mitigate his damages by failing to offer to return to employment with the defendant in order to work out the remainder of the notice period after the recall.

[50] The recall request was issued after two months; the action was started soon after. Under the contract, Mr. Davies would have been entitled to 6.5 months’ notice. This period is reduced to two months on the basis that Mr. Davies failed to take reasonable steps to mitigate his damages.

[51] In the normal course, the plaintiff would have his costs at Scale B. If there is a reason to speak to costs, counsel may arrange to do so through the registry.

“M.A. Humphries J.”
The Honourable Madam Justice M.A. Humphries

Citation:	*Davies v. Fraser Collection Services Limited,*
	2008 BCSC 942