Ontario employment law cases often center around wrongful dismissal claims. There is another less explored counterpart, however – wrongful resignation.
Wrongful resignation arises when an employee leaves their employment without providing proper or reasonable notice, thereby causing actual damages and losses to the employer.
Although case law around wrongful resignation has been sparse in Ontario, the cases that have reached the courts have focused on employees’ obligations when resigning and employer’s rights to redress for wrongful resignation under common law.
The Legal Foundation and Employer’s Obligation to Prove Damages
In order for an employer to be successful in a wrongful resignation claim, the employer must be able to demonstrate the following elements:
- The employee has failed to provide reasonable notice of resignation as required be common law.
- The employer has suffered measurable and direct damages as a result.
- The employer took reasonable steps to mitigate losses, such as seeking a replacement promptly.
The threshold for an employer to prove wrongful resignation is fairly high. Courts require a clear nexus between the employee’s failure to provide notice and the employer’s resultant losses. Furthermore, damages cannot be speculative or hypothetical- they must be substantiated by concrete and clear evidence.
Key Criteria for a Wrongful Resignation Claim
The courts have consistently held that a successful wrongful resignation claim must satisfy the following:
- There must have been a voluntary resignation and the employee must have resigned of their own accord.
- There must have been no cause for resignation and factors such as demotion or pay reductions cannot have prompted the resignation.
- The employee must have resigned without providing reasonable notice, as determined by their role, length of service, and level of responsibility.
- The employer must be able to demonstrate that financial harm was directly caused by the lack of notice.
- The employer must show that they attempted to minimize their losses.
Case Law Analysis
The legal framework around wrongful resignation has been defined and refined through various cases, each offering unique insights into the obligations and rights of employees and employers alike.
The 2021 case of Anderson v. Total Instant Lawns Ltd, offers a nuanced exploration of wrongful resignation, highlighting the importance of providing measurable damages. The employee, Karen Anderson, was an office manager at a small family-run business and found herself at odds with her employer over a dispute regarding her husband’s paycheck. Frustrated, she stopped reporting to work and even participated in drafting a “strike notice” alongside other employees. The employer responded by barring her from the workplace, ultimately resulting in mutual allegations- Anderson claimed wrongful dismissal, while the employer counterclaimed with wrongful resignation.
The court’s analysis centered around the concept of repudiation. Although Anderson’s actions, including her refusal to fulfill her critical duties and her involvement in work stoppage, were deemed to undermine the employment relationship, when evaluating the employer’s counterclaim, the court found that the employer had offered no substantive evidence supporting any significant financial loss. While Anderson’s sudden absence had caused operational inconvenience, the employer had successfully and quickly replaced Anderson, thereby negating the claim of measurable damages during the notice period.
In making her decision to dismiss the Defendant employer’s claim, Justice Parfett stated
[39] “The Defendant claims damages for wrongful resignation. In order to make out a claim for wrongful resignation, the employer must demonstrate more than just that the unexpected departure inconvenienced the company, the employer must show that it suffered losses, or costs in excess of what it saved by not paying the employee’s salary during the notice period.”
[40] “The evidence at trial indicated that Mr. Kwiatkowski replaced Ms. Anderson almost immediately by hiring a friend. There is no evidence that Ms. Anderson’s departure caused any of the losses claimed by the Defendant. According to Mr. Kwiatkowski, the losses alleged by the Defendant were related to the fact several employees refused to return to work after the work stoppage occurred and, as a consequence, the Defendant was short-handed for the remainder of the season.”
This case underscores a key principle- the success of a wrongful resignation claim lies partly in the employer’s ability to prove actual losses exceeding savings from unpaid wages during the notice period. Without such evidence, a claim for wrongful resignation is likely to fail.
In the 2012 Ontario Court of Appeal decision of GasTOPS Ltd. v Forsyth, Justice Goudge upheld the trial court’s ruling. The case centered on an employee who resigned without giving adequate notice and, shortly after leaving, established a new business aimed at the same specialized software projects and partnerships that the Plaintiff employee was pursuing. Following this, two additional senior employees resigned with just two weeks’ notice, and jointed the newly formed competing company.
The Plaintiff sued for wrongful resignation, among other things such as breach of fiduciary duty. In the trial decision, Justice Granger noted that the Defendants’ actions had left the Plaintiff without a chance to address or soften the impact of their departure due to the lack of reasonable notice. The court determined that the Defendants had violated their fiduciary obligations by leveraging confidential information to create a competing venture. As a result, the trial court ordered that the Defendants’ company return profits earned during the first ten years of its operation, totaling over $12 million, along with pre-judgment interests and costs.
The Defendants appealed the decision and contested the ten-year period used to calculate the disgorgement of profits. However, the Court of Appeal upheld the trial court’s ruling and agreed that the ten-year period was supported by evidence and was appropriate in consideration of the particular circumstances. Justice Goudge stated that
[58] “The appellants argue that a ten-year accounting period greatly exceeds the time limits prescribed by the “springboard” case law. However, here too the facts of each case are most important. In this case, those facts made clear that the advantage gained from the information misappropriated by the appellants is not measured simply by the time they would have had to take to themselves develop the last iteration of the GasTOPS suite of programs. It must take account of the many years that went into bringing these programs from inception to where they were in the fall of 1996. That supports a longer accounting period.”
[60] “I would conclude that the choice of an accounting period in a breach of confidence case depends very much on its particular facts. As I have said, on the facts found here, the trial judge’s conclusion of ten years was entirely reasonable.”
In the 2000 case of Sanford Evans List Brokerage v. Trauzzi, the intersection of fiduciary duties and wrongful resignation came under scrutiny when the Defendant employee, a vice-president of the brokerage firm, resigned to start her own competing company. Her new venture subsequently captured 84% of the Plaintiff employer’s clients in its first year, resulting in substantial financial losses for the employer.
The court conducted a detailed analysis of Trauzzi’s role, concluding that her position carried fiduciary obligations due to her authority and influence over the business.
[41] “In the circumstances before me, I find no difficulty whatsoever, in defining the role of Linda Trauzzi as manager of the list brokerage division of Sanford Evans from 1974 until her departure at the end of 1991, to be that of a fiduciary. For much of that time, she was an officer of Sanford Evans and the manager and vice-president of the division. As noted above, she was responsible for managing its day-to-day operations and Sanford Evans relied on her knowledge and experience to do so in a proper and enterprising manner. I am satisfied that her overall role and mandate did not change after Québecor acquired Sanford Evans; if anything, her responsibilities increased. I found no evidence of any interference in her management of the division’s operations after 1988.”
Justice Chapnick further emphasized that fiduciary relationships in employment are not based solely on job titles; they arise when an employee has significant power to unilaterally affect the employer’s interests.
[38] “The case law in this area is well settled. In order for a fiduciary relationship to arise in an employer/employee context, the employee must have scope for the exercise of discretion or power and the potential to exercise this discretion or power unilaterally to affect the employer’s legal or practical interests.”
The untimely departure of Trauzzi and the other employees precipitated a significant detriment to the employer as it resulted in the loss of many important clients. Justice Chapnick noted:
[82] “…the early departure of the defendants limited the ability of the plaintiff to compete with the new Watts company for the business of its former customers. Some of the business generated by former clients would have remained with Sanford Evans if Linda Trauzzi had stayed there during the transitional period to facilitate the learning process and the transfer of files. At the very least, the plaintiff would have been in a position to more effectively compete with Watts for business. That factor must be taken into account in the assessment of damages flowing from the breach of obligations owed by the defendants to the plaintiff.”
The court ultimately held Trauzzi liable, awarding damages to the employer in the amount of $200,000.00
This case provides a powerful reminder that, while fiduciary duties and wrongful resignation are distinct concepts, employees in senior or influential roles may be held to heightened standards of accountability. Employers, however, must be able to demonstrate a clear link between the employee’s breach and the resulting financial harm suffered.
In each of the foregoing cases, courts have repeatedly emphasized the need for employers to substantiate claims with clear evidence of financial loss during the notice period. Mere inconvenience or disruption is insufficient. Furthermore, employers must also demonstrate that they have made reasonable attempts to minimize their losses, such as hiring temporary or permanent replacements. On the other hand, employees have certain obligations and are expected to honor their duty of reasonable notice, especially when their role is integral to the business operations of their employer.