In Filice v Complex Services Inc, the Ontario Court of Appeal held that an unpaid suspension of an employee under investigation can constitute constructive dismissal.  Helpfully, the Court of Appeal outlined important factors as to when such suspensions will constitute constructive dismissal. 

Background

Complex Services Inc. (“Complex”) operates Casino Niagara and Fallsview Casino (collectively, “the Casino”).  Mr. Filice was employed as a Security Shift Supervisor at the Casino’s Security Department since April 1999.  One of the Security Department’s responsibilities was to manage the Casino’s lost and found processes, which included collecting property and money.  Additionally, it is a legislative requirement under the Ontario Gaming Control Act for Security Shift Supervisors to maintain a valid gaming registration issued by the Alcohol and Gaming Commission of Ontario (“AGCO”).  Without a valid gaming registration, it is illegal for an individual to work anywhere in the Casino’s Security Department.

In December 2007, The AGCO Compliance Unit contacted the Casino’s Director of Security, Mr. Paris, after it ran a routine audit of the Casino’s lost and found logs.  Several discrepancies involving Mr. Filice were identified.  The AGCO Compliance Unit advised Mr. Paris that Mr. Filice was under investigation for theft in the workplace.  Mr. Paris then placed Mr. Filice on an investigative suspension without pay pursuant to the Casino’s policy:

Investigative Suspension may be used as part of the coaching and counselling process to verify allegations of misconduct. During an investigation, the Associate may be prohibited from working. If a decision is made to separate the Associate’s employment, he or she may not be reimbursed for time spent on Investigative Suspension.  [emphasis added]

In January 2008, Mr. Filice was charged with four counts of theft under $5,000 and one count of breach of trust.  The AGCO also suspended Mr. Filice’s gaming registration.  By February 2009, all of Mr. Filice’s criminal charges were either withdrawn or dismissed, but his gaming registration remained suspended.  Mr. Filice voluntarily surrendered his gaming registration, prompting Mr. Paris to declare Mr. Filice’s employment had come to an end.

Mr. Filice alleged he was constructively dismissed. At trial, Justice Skarica found for Mr. Filice, awarding over $75,000 in damages representing 17 months’ wages, punitive damages of $100,000, and costs of $82,000.

The Court of Appeal agreed that Mr. Filice was constructively dismissed, but reduced Mr. Filice’s reasonable notice period to 7 months and set aside the punitive damage award.

The Court of Appeal considered two issues:

1. Did Justice Skarica err in his constructive dismissal analysis?
2. Were punitive damages appropriate in this case?

Justice Skarica Erred in his Constructive Dismissal Analysis

The Supreme Court of Canada’s decision in Potter v New Brunswick (Legal Aid Commission) confirmed the test for constructive dismissal involves two branches.  The first branch applies where there has been a single act by the employer that may constitute a breach of the employment contract.  The second branch applies where there has been a continuing course of conduct by the employer that may, collectively, give rise to a finding that the employment contract had been breached.  This case involved the first branch. 

The first branch of the test requires a review of the specific terms of the employment contract.    This involves two further steps: a) identify an express or implied contractual term that has been breached, and b) determine if the breach is sufficiently serious to constitute constructive dismissal.

A. An Express or Implied Contractual Term had been Breached

Suspending an employee without pay is a breach of the employment contract unless the contract contains an express or implied term that allows the employer to do so.  The Court of Appeal recognized the Casino’s policies allowed Mr. Filice to be suspended without pay.  However, a suspension under the policy was not automatic and must be imposed at Complex’s discretion.

For administrative suspensions, the employer has the burden to show the suspension is justified.  The Supreme Court of Canada case, Cabiakman v Industrial Alliance Life Insurance Co, outlines the following factors to help determine if an employer met this burden:  whether there is a sufficient connection between the employee’s misconduct and the kind of employment the employee holds; the actual nature of the charges; whether there are reasonable grounds for believing that maintaining the employment relationship, even temporarily, would prejudice the business or the employer’s reputation; and whether there are immediate and significant adverse effects that cannot practically be counteracted by other measures.

In this case, the Court of Appeal found the suspension was justified.  Given Mr. Filice’s important role as a Security Supervisor, and given the regulated nature of Complex’s operations, it was reasonable for Complex to suspend Mr. Filice pending the investigation into his alleged misconduct.

With no express language in the contract stipulating that suspensions must be unpaid, the Court of Appeal considered whether Complex met the burden of showing the unpaid suspension was justified.  Based on Complex’s policies, the Court of Appeal held the suspension without pay was a matter of discretion that must be exercised reasonably.  In this case, Complex mistakenly imposed the unpaid suspension automatically, and did not consider whether the suspension should be with or without pay. The Court of Appeal was not convinced that Complex, at least at the very early stage of the investigation, could reasonably have concluded that an unpaid suspension was warranted.  Therefore, imposing the unpaid suspension was a breach of the employment contract’s implied term that Complex’s power to suspend without pay would not be unreasonably used.

B. The Breach was Sufficiently Serious to Constitute Constructive Dismissal

Turning to consider the second step of the first branch of the Potter test, the Court of Appeal found that the substantial impact of suspending Mr. Filice without pay was a breach of the employment contract that amounted to a constructive dismissal.

C. The Court of Appeal Reduces Mr. Filice’s Compensatory Damage Award

Concluding that Mr. Filice was constructively dismissed, the Court of Appeal found Justice Skarica erred by treated the entire period of Mr. Filice’s suspension as being the appropriate notice period.  Following the Bardal factors, the Court of Appeal considered Mr. Filice’s 50 years of age, 8.8 years of service, yearly salary of $50,000, and the fact that it took Mr. Filice 7 months to find other employment.  Accordingly, the Court of Appeal held 7 months of notice was reasonable in the circumstances.

The Court of Appeal also considered a unique aspect of this case: the fact that one month into the suspension, Mr. Filice’s gaming registration was suspended by the AGCO.  Complex tried to argue that the suspension of Mr. Filice’s gaming registration limited any claim for damages to just one month.  This argument was rejected, because damages are assessed on the date of the breach of contract, and the Court of Appeal did not find an exception to this rule was warranted.  Also, the Court of Appeal held that Complex did not have an obligation to find Mr. Filice alternative employment that did not require a gaming registration.  Imposing a duty on employers to offer alternative employment would be contrary to the fundamental principles of individual agency, freedom of contract, and would be tantamount to binding the parties to a specific performance obligation for employment.    

 Punitive Damages are not Warranted

 Punitive damages are only warranted where compensatory damages are inadequate to accomplish the objectives of retribution, deterrence, and condemnation.  As the Supreme Court of Canada’s decision in Whiten v Pilot Insurance Co states, an award of punitive damages is only for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency.”

In this case, Justice Skarica did not engage in any analysis of why the compensatory award was inadequate to achieve those objectives.  This was an error in principle, as Complex would already pay for its error in suspending Mr. Filice without pay through compensatory damages.  The Court of Appeal stressed that it must not be forgotten that compensatory damages have a punitive element to them.  Therefore, the award of punitive damages was set aside.

Takeaways for Employers

This case reminds employers to exercise caution when suspending an employee.  Employees should only be suspended without pay if it is expressly allowed for in the employment contract, and these suspensions must always be reasonable.  This is true even if the suspension is interim while the employee is investigated for allegations of serious misconduct.  Employers always carry the burden of proving why a suspension without pay is reasonable.