Corporate Mergers and Restructuring’s May Lead to Constructive Dismissal Claims for Canadian Employees

Christine, September 13, 2018

The recent decision of Robinson v. H.J. Heinz Company of Canada LP, 2018 ONSC 3424 (“Heinz”) is a reminder that companies need to be cognizant of the effect corporate restructurings or mergers have on its Canadian workforce. A company failing to proactively deal with and plan for a restructuring on its workforce can result in costly constructive dismissal claims. The plaintiff in this case began her career with Heinz in November 1999 as a supervisor in accounts payable working out of its Leamington facility. By 2013, the plaintiff rose up the ranks to being a valued and experienced manager. In 2013, the Heinz US parent was acquired by new owners which led to the closure of the Leamington Facility. As a result, the plaintiff relocated to Heinz’s Toronto office given that Heinz was offering her a promotion to be a Senior Manager, Accounting. Effective June 2014, the plaintiff relocated her and her family to Toronto to take up this new managerial role. In the spring of 2015, Heinz in the US announced it was merging with Kraft Foods effective July 1, 2015. This had obvious implications for Heinz in Canada. Consequently between July 1, 2015 and September 1, 2015, Kraft Heinz made unilateral changes to the plaintiff’s role and responsibilities by diminishing her duties and responsibilities without any warning, discussion, and without any clear path for her job going forward. The company also arbitrarily changed who she reported to. Kraft Heinz described the situation as fluid. The plaintiff voiced her objection to management in writing and in meetings. The company failed to address her concerns. On September 8, 2015, the plaintiff resigned her position claiming constructive dismissal. To be fair and reasonable she gave the company over two weeks’ notice. She was able to find a job immediately back in southwestern Ontario. The plaintiff subsequently sold her home in Mississauga and relocated her family back to southwestern Ontario. She claimed damages for constructive dismissal plus over $45,000 in relocation costs as mitigation expenses.

Constructive Dismissal can take two forms:
A. A unilateral act by the employer that breaches an essential term of an employee’s employment contract; or
B. A series of acts by the employer that, taken together show the employer no longer intends to be bound by the employment contract.

The Court found that under either branch of the test, Heinz constructively dismissed the employee, and that Heinz no longer intended to be bound to the plaintiff’s employment contract. The court held that unilateral changes brought upon by a restructuring amounts to a breach of an employment contract. The Court specifically stated at para. 51 “An employer has an obligation to convey its proposal regarding changes clearly to the employee. Where it fails to consult with the employee in this manner, leading to uncertainty as to the implications of the proposed changes, it alone must bear the consequences.” Further, on this point, the court went onto say at para. 54 “Here, the employer was engaged in a broad and extensive restructuring of its newly-merged operations. It plainly had different ideas about how the responsibilities previously assigned to the plaintiff would be discharged in the new enterprise.”

As counsel had previously agreed on a notice period, the Court awarded damages equating to 15 months notice which included 23.8 weeks of statutory notice and severance pay. In applying the Court of Appeal’s decision in Brake v. PJ-2MR Restaurant Inc., 2017 ONC 402, the Court only deducted mitigative income the plaintiff earned in her new position for the reasonable notice period after the expiry of the 23.8 weeks. Lastly, the court awarded the plaintiff $45,010.32 in mitigation expenses with respect to her relocating from Mississauga back to Southwestern Ontario.

This decision is a perfect example of how companies should NOT roll out a merger or restructuring, and how costly it can be. It is essential for employers to engage with its managers in the restructuring process, and where possible provide reasonable notice of any material changes to hedge against a claim of constructive dismissal. Employers also should specifically address all employee’s concerns about changes in roles and responsibilities.

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