CHAUDHRI: Terminations during COVID pandemic continue to cost employers

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Five  years after COVID-19 began, much of Canada is finally returning to a five-day work week.

COVID-19 didn’t just leave a mark, it completely transformed the way we look at workplaces and how people should work. Part of the major transformation created by the pandemic included widespread restructuring that left many employees without work and hefty wrongful dismissal claims.

Five years later, the courts continue to deal with cases arising from the early COVID-19 era.

Take for example the recent case of Joanna McFarlane, an executive vice president at King Ursa. The company promoted McFarlane in quick succession during her short tenure – no doubt in recognition of her strong ability. As an EVP, McFarlane earned a base salary of $300,000 and also received a phantom share allocation of 5%.

While McFarlane enjoyed a swift rise up the ranks, King Ursa’s business suffered during the pandemic, which it responded to by rolling out a major restructuring of the workforce.

In July 2022, McFarlane took maternity leave. About a week into her leave, she was advised of King Ursa’s extreme cash flow problem. Over the course of 2022 and early 2023 the company asked McFarlane twice to extend her maternity leave to relieve the cost of employing her.

When McFarlane finally returned to work in April 2023, she was presented with a letter reducing her salary to $210,000 and demoting her to a blend of positions she held previously.

McFarlane refused to sign the new contract, and instead resigned and alleged constructive dismissal, seeking reasonable notice, human rights damages, and moral damages.

At trial, Justice R. Lee Akazaki found that King Ursa’s actions breached McFarlane’s employment agreement and constituted a constructive dismissal entitling her to wrongful dismissal damages. The court found that the return-to-work discussions, including the two deferrals, exerted pressure on McFarlane to accept the new terms or leave her employment.

The judge found that although the employer’s financial difficulties were understandable from a business context, they did not excuse their legal obligations as an employer.

McFarlane was awarded 12 months reasonable notice, with the availability of comparable positions being the most heavily weighted factor. The judge considered the fact that McFarlane had been promoted rapidly by King Ursa on the basis of her hard work and entrepreneurial energy, but she had been unable to secure a comparable position following her dismissal.

While the court did not find that King Ursa discriminated against McFarlane for taking a maternity leave, the court was not as sympathetic with respect to imposing a demotion on her return.

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The court stated, in part, ” I appreciate the attempt to impose a salary cut was not to push her out but to implement a cost reduction scheme. However, there was no justification of imposing a demotion.”

The court went on to say, “Any employee, especially one whose executive status is closely tied to her identity and self-esteem, would react negatively to a document containing a demotion.”

McFarlane was awarded $40,000 in moral damages in addition to the $290,615.81 for wrongful dismissal damages.

While many businesses suffered financial losses during COVID, this decision makes it clear that the impact of the pandemic on business did not curtail employee entitlements on termination.

If anything, this case reinforces how important it is for employers to preserve the status, tenure and reputation of executive employees – even during hard financial times.

Have a workplace problem? Maybe I can help! Email me at sunira@worklylaw.com and your question may be featured in a future column.

The content of this article is general information only and is not intended to be legal advice.