Canada: Case Law Update: Evans v Avalon Ford Sales (1996) Limited

Earlier this year, the Newfoundland and Labrador Court of Appeal unanimously upheld the decision of the Trial Division in Evans v Avalon Ford Sales (1996) Limited. The trial decision was discussed in an earlier publication.

The case involved a wrongful dismissal claim by Mr. Evans ("Evans") who was Fleet Manager at the Avalon Ford auto dealership (the "Dealership") for more than 12 years. Based on the facts, as summarized in our previous publication, the trial judge found that while Evans' resigned from the Dealership, the resignation was neither voluntary nor unequivocal.  Accordingly he was entitled to damages based on 12 months' pay in lieu of notice. The trial judge determined that Evans' damages must be assessed based on the earnings that were reasonably expected on alternative employment with the Dealership during the notice period, since Evans did not want to continue with the additional duties of his Fleet Manager position. Evans was also entitled to special damages. The trial judge declined to award moral or punitive damages, despite finding that the Dealership deliberately took steps to deprive Evans from obtaining his short term disability benefits and that following his resignation, the Dealership's conduct was characterized as a form of "careless disregard".

The Appeal

Avalon Ford appealed the decision on the basis that the trial judge misapplied the law respecting voluntary resignation, drew conclusions unsupported by the evidence, and erred in the calculation of damages.

Evans cross-appealed on the basis that the trial judge erred in calculating his pay in lieu of notice, basing it not upon his position and income at the time of termination but on what he would have earned based on modified duties. Evans also cross-appealed the trial judge's decision not to award moral and punitive damages in light of the findings of fact made at trial.

Justice Harrington, writing for a unanimous Court of Appeal, dismissed both the appeal and cross-appeal. Although he held that some aspects of the rulings of the trial judge were flawed, he agreed that Evans did not resign and therefore there was no reason to set aside the conclusion of wrongful dismissal. Justice Harrington held that he would not go as far as the trial judge did and imply a free-standing term of good faith into the parties' contract of employment.

Resignation / Wrongful Dismissal

Justice Harrington held that the test for determining whether an employee resigned is an objective one: the resignation must be clear and unequivocal.  However, to be clear and unequivocal, the resignation must objectively reflect an intention to resign or conduct evidencing such an intention. An employee's state of mind is a relevant consideration in determining whether or not the objective circumstances reflect a genuine intention to resign. Therefore, the Court of Appeal disagreed with the Dealership's argument that the trial judge misapplied the law of voluntary resignation.

Justice Harrington affirmed the trial judge's decision that it was not reasonable for the Dealership to conclude Evans had resigned in light of the circumstances surrounding his resignation, adding that it is well established that resignations in the heat of the moment, particularly where there has been a lengthy employment relationship, are precisely the type of situation where the overarching duty of good faith takes effect. 

Damages

Instead of assessing damages based on Evans' position and income at the time of his wrongful dismissal, the Court of Appeal upheld the trial judge's assessment of damages based on Evans' earnings that were reasonably expected on alternative employment with the Dealership. Interestingly, no jurisprudence was provided in support of this position. The trial judge found that had Evans returned to work, his duties would have been modified and he would have earned less income, which was consistent with Evans' own evidence that he did not want to continue to perform additional duties of Fleet Manager due to stress. As a result, Evans' damages for pay in lieu of notice was based on an annual salary that was approximately $100,000.00 less than his average salary prior to his involuntary resignation.

Justice Harrington refused to disrupt the trial judge's decision to compensate Evans for the loss of his short term disability benefits. He also found that it was reasonable for the trial judge to conclude, by relying on past conduct of the parties, that Evans was entitled to funds from the Ford incentive ("May Mania") program.

Moral and Punitive Damages

Although the employer took steps to deprive Evans of short-term disability, the trial judge made the ultimate finding that Evans had been adequately compensated for all his damages and by the recovery of the short term disability he had lost.  Justice Harrington held that the trial judge did not err in declining to award moral damages, and that Evans was adequately compensated for all damages when the trial judge ordered that he be entitled to the short-term disability benefits he had lost. Furthermore, Justice Harrington held that nothing in the evidence suggested the trial judge erred in determining Evans had not established grounds for entitlement to punitive damages. Ultimately, the Court of Appeal found that the trial judge did not err in determining that that conduct of the employer did not rise to the level of actions required to award punitive damages.

Takeaways for Employers

The outcome in this case serves as a reminder that employers must remember that when the circumstances surrounding an employee's "resignation" are emotionally charged, the resignation should not be taken at face value; time must be given for both parties to cool off, gather their thoughts and reconsider their actions, or risk costly litigation. Although moral and punitive damages were not awarded in this case, they very easily could have been. The employer's conduct in this case serves as an example of what not to do when an employee tries to access short-term disability benefits.

Please click below for the full decision:
Avalon Ford Sales (1996) Limited v Evans, 2017 NLCA 9 (CanLII)

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