Breach of Telecommute Agreement Resulted in Constructive Dismissal: Hagholm v. Coreio Inc., 2017 ONSC 7713, varied 2018 ONCA 633

November 2018

Article by: Julia Bell

Previously printed in the LexisNexis Labour Notes Newsletter.

The Ontario Court of Appeal recently affirmed a decision of the Ontario Superior Court of Justice which found that an employee had been constructively dismissed when the employer revoked her telecommute agreement and arbitrarily reduced her annual bonus.

Ontario Superior Court of Justice

The defendant employer is an information technology services company. The plaintiff, Rosemary Hagholm, initially worked for the employer for 10 years at the company’s Toronto location. In 1992, she quit her job when she moved to the Waterloo region due to the increased commute. Two years later, she was asked by the company to enter into a six-month contract. Following the conclusion of that contract, she was recruited to come back to the company on a full-time basis.

The plaintiff accepted full-time employment on the basis that she could work from home three days a week. This arrangement continued uninterrupted for the next 22 years.
In January 2017, the defendant made several unilateral decisions affecting Ms. Hagholm’s employment, including:

  1. Requiring her to work in the office five days a week; and
  2. Arbitrarily reducing her fourth-quarter bonus payment for 2016. At this time, the plaintiff held the position of Manager, Consulting Services and her compensation package included a yearly bonus.

In March 2017, Ms. Hagholm resigned from employment and ultimately brought a claim alleging she had been constructively dismissed.

The defendant argued that the work-from-home arrangement was not a term of her employment but a preference which the defendant had previously been prepared to accommodate.

The Superior Court of Justice refused to entertain that argument. It held that even though the telecommute requirement was not reduced to writing, it was clear there was an oral agreement between the parties which permitted the plaintiff to perform her work from her home office 60 percent of the time. It was the telecommute agreement that induced her to return to employment with the employer, and working from home three days a week was an essential term of her employment agreement.

The defendant’s unilateral breach of that term of employment resulted in a finding by the Court that the employer had constructively dismissed the employee.

The Court also found that the change to Ms. Hagholm’s bonus in the last quarter of 2016, which was arbitrarily made by the defendant in contravention of the employment contract, also grounded constructive dismissal.

With respect to damages, the Court found that the plaintiff was not obligated to return to work for the defendant as part of her obligation to mitigate because of the defendant’s breach of a fundamental term of the employment agreement.  She was awarded damages in excess of 20 months of salary, with a contingency deduction to allow for the possibility that she might find employment during the notice period.  She was also awarded $11,261 as compensation for the underpayment of her 2016 bonus.  The Court did not award any portion of her 2017 bonus for the two months she had worked in 2017.

Ontario Court of Appeal

The defendant appealed.  It argued that the lower court judge made several errors with respect to the damages portion of the award, including by finding that the plaintiff did not have to return to work at the employer to mitigate.  The defendant also argued that the judge erred by concluding it had “arbitrarily” set the plaintiff’s bonus payment in 2016.

The Court of Appeal dismissed the defendant’s appeal entirely and then considered the plaintiff’s cross-appeal.

Ms. Hagholm argued that the lower court judge erred by not awarding her the pro rata portion of her 2017 bonus for the two months she worked in 2017 and by failing to make an award for all forms of compensation, including bonus compensation, for the duration of the notice period.

Her cross-appeal was allowed, and the lower court award was varied, to provide Ms. Hagholm with her pro rata bonus entitlement throughout the notice period.

Takeaways for Employers

In an era where alternate work arrangements are more prevalent than ever before, it is important for employers to understand when a particular arrangement becomes an essential term of an employment contract.

Employers should exercise caution in permitting employees to engage in alternate work arrangements and should consider formalizing in writing whether the arrangements can be brought to an end by the employer or employee and, if so, how that will occur.

Employers should also exercise caution and seek any necessary legal advice before making unilateral changes to established working conditions or arbitrary changes to compensation, as such changes can be viewed as constructive dismissal by the courts.