Ontario Court finds constructive dismissal not suitable for class action proceeding

26 avril 2011

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In Kafka v. Allstate Insurance Company of Canada, the Ontario Superior Court found that a proposed class action by former employees of Allstate who alleged that they were constructively dismissed is not suitable for certification.  The plaintiff, who resigned along with a large number of other employees following a policy change to the manner in which they were compensated, claimed that the unilateral change by Allstate to their compensation amounted to constructive dismissal on a class–wide scale. However, the court disagreed, and stated that the individual situation for each of the plaintiffs would have to be examined, and therefore this proceeding was no appropriate as a class action.

Facts:

The former employees were all sales agents for Allstate. On July 24, 2007, Allstate issued a general announcement letter to all agents, advising that a revised product distribution model and compensation system would be implemented as of September 1, 2009. The new model would be phased in from September 1, 2007 through September 1, 2009. Following the implementation of the new system, the plaintiffs alleged that the new model was a unilateral change to the fundamental terms of the employment contracts and constituted constructive dismissal. They resigned enmasse from Allstate, and commenced the class action proceeding on behalf of the nearly 100 agents who rejected the new model. The plaintiffs were seeking termination and severance pay under the Ontario Employment Standards Act, 2000 plus punitive damages.

Elements of a claim for constructive dismissal

The court undertook a comprehensive review of the elements of constructive dismissal. The Court affirmed the seminal case of Farber v. Royal Trust Co, 1997 CanLII 387 (S.C.C.), [1997] 1 S.C.R. 846, where that court stated:

A constructive dismissal occurs when an employer makes a unilateral and fundamental change to a term or condition of an employment contract without providing reasonable notice of that change to the employee. Such action amounts to a repudiation of the contract of employment by the employer whether or not he intended to continue the employment relationship. Therefore, the employee can treat the contract as wrongfully terminated and resign which, in turn, gives rise to an obligation on the employer's part to provide damages in lieu of reasonable notice.                                                                  [Emphasis added.]

The court further affirmed that the onus of proving constructive dismissal rests on the employee; that the inquiry must focus on the impact on the employee’s position and the employment relationship; and that the most important consideration is the degree of change which the altered job duties place on the employee. Once such a unilateral and fundamental change occurs, two important obligations are imposed on the employee: an obligation to accept or reject the change, and an obligation to mitigate if the change is rejected.

It was clear in the case at hand that the employees rejected the change proposed by Allstate in the new model.  The question was whether the employees failed to mitigate by refusing an offer of reasonable employment with Allstate by rejecting the new model.  Importantly for this class proceeding, the court found that the duty to mitigate required an analysis on a case by case basis.

Elements required for certification of a class proceeding

Following an extensive review of the evidence, the court addressed the fundamental requirements for the certification of a class action. Under the Ontario Class Proceedings Act, there are five criterion that must be satisfied:

(a) the pleadings or the notice of application disclose a cause of action;
(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;
(c) the claims or defences of the class members raise common issues;
(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and
(e) there is a representative plaintiff or defendant who, (i) would fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

The court stated that the requirements above are linked, and that the core of a class proceeding is the “element of commonality”.  While the decision on certification is not fully merits-based, the courts have established a “some basis in fact” test, which allows the certification judge to examine some evidence to support the requirements set out above.

Pleadings disclose a cause of action

The court will only strike a claim where the pleadings do not contain a cause of action known to law, or it is plain, obvious and beyond doubt that the plaintiff cannot succeed. As it was conceded that the statement of claim contained a valid cause of action, this criterion was met.

Identifiable Class

Following an amendment to the definition of the class by counsel for the plaintiff which excluded certain agents who were dismissed for cause and therefore not entitled to any benefits under the ESA, the court found that the class was properly identified and limited to a group of persons who had a potential claim against Allstate.  The second criterion was met.

Common Issues

As is the case in many class action certification motions, this criterion was the most problematic for the agents’ claim. In order for an issue to be common, it must be a substantial ingredient of each member’s claim and its resolution must be necessary to the resolution of each class member’s claim.  An issue will not be common if its resolution is dependent upon individual findings of fact that have to be made with respect to each individual claimant.  Following an in-depth analysis of the ten proposed common issues, the court found that they contained a fatal flaw: they lacked commonality. The resolution of the proposed common issues would require individual fact finding and legal analysis, and could not be determined on a class wide basis.  This was especially true of the examination of the alleged constructive dismissal of each agent; the court found that to establish this claim, each individual agent’s situation must be examined to determine whether or not the agent had been constructively dismissed.

Likewise, the determination of the proposed common issues of (i) whether two years notice was sufficient; (ii) whether the agents’ employment contracts permitted substantial material change; (iii) whether the agent’s had an obligation to mitigate by accepting the New Model as a reasonable alternative employment offer; (iv) failure by Allstate to pay termination and/or severance pay; and (v) whether the conduct of Allstate justified an award of punitive damages all required an examination of the each agent’s individual employment situation and an analysis of the legal facts and principles on an individual level.  As such, the court rejected the common issues proposed by the plaintiffs, and the third criterion was not met.

Preferable procedure

Having found that the common issues required an individual analysis of each agents’ employment relationship with Allstate, it followed that a class proceeding was not the preferable procedure for these claims. As there was no single common issue that would advance the litigation for the entire class, a class action would not be a fair, efficient or manageable procedure to use and it would not promote judicial economy or improve access to justice.  This was a case where there was “no practical utility in allowing the class action to proceed”, and the fourth criterion was not met.

Representative plaintiff with a workable litigation plan

The court found that two of the three representative plaintiffs were competent representatives of the class.  However, the litigation plan proposed by the representative plaintiffs failed to explain how the individual nature of a constructive dismissal could be managed in a class action. The plan assumed that oral and documentary discovery would be sufficient to move the action to a trial or summary judgement, however, the court found that the plan “ignores the reality of a constructive dismissal action” as discussed in the rejection of the common issues.

In conclusion, the court denied the plaintiffs motion to certify the action, finding that an action based on constructive dismissal was not amenable to a class proceeding.

Our Views:

This case is interesting in that it contains an extensive examination of the elements of an action for constructive dismissal and found that these elements were not conducive to a class proceeding. This judgment affirms the principle that the determination of constructive dismissal requires an assessment of the individual’s employment situation, and therefore cannot be conducted on a class-wide basis.

Taken liberally, this judgment indicates that any action involving the termination of employees, including constructive dismissal, may be unsuitable for a class proceeding if the commonality requirements set out in the Class Proceedings Act cannot be met by the plaintiffs.

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