Discipline Is Not the Same Thing as Firing

Financial Post: 6 July 2005 All Rights Reserved.

Employees in high-pressure jobs often jump before they are pushed and claim constructive dismissal, fearing that they will be otherwise fired.

Laara Sinclaire knew that her position, touting time-share condos in Whistler, B.C., was only as secure as her latest results.

Sinclaire worked for resort developer Intrawest Corp., converting leads the company gave her into long-term customers. Her employment contract required Sinclaire to sell time-shares to at least 11% of the leads Intrawest provided her. It considered this reasonable because it cost Intrawest an average of $500 per potential customer in financial inducements to persuade them to attend its sales centre.

Although her performance was excellent for several years, in the spring of 2000, Sinclaire began to regularly miss her monthly sales targets. Although the contract gave Intrawest broad disciplinary powers short of termination, including the right to impose performance requirements or suspend, Intrawest usually just issued warnings. Its practice was to provide at least two of those, which forced salespeople to close 13% of their leads, before termination.

But in the fall of 2000, Intrawest took a different approach with Sinclaire and three other employees. Rather than discipline them for recent substandard performance, the employer offered them a choice. The first option was to accept a warning letter, requiring them to achieve the 13% closing rate within three weeks or be fired. The second was to immediately serve a 3 1/2-month unpaid leave of absence, which had the advantage of their returning to work only at the end of the slow fall sales season.

Sinclaire selected the leave of absence option, then sued Intrawest for constructive dismisssal.

The court found that non-union employers generally have no legal right to temporarily lay off employees and, according to the contract, Sinclaire could only receive a short suspension for such indiscretions as insubordination — not for performance. As result, the judge found that the layoff was a wrongful dismissal and even the warning letter, in providing for potential dismissal in three weeks, was both excessive and inconsistent with its past practice.

The B.C. Court of Appeal recently overturned the trial decision, ruling that Sinclaire was not constructively dismissed, but instead, had voluntarily resigned. The appeal judges held that Intrawest did not breach its obligations as an employer, since work was available either immediately, in which case conditions would apply, which the contract permitted and which the other three had accepted, or upon her return from the leave of absence. Significantly for employers, the court also noted that a warning is not a constructive dismissal because, “at most, it is a threat of a future dismissal contingent on unsatisfactory future performance.”

The Court of Appeal found the leave of absence offer was a good-faith attempt to help valued but struggling employees in the hope of improvement. The claim of excessive or inconsistent treatment rang hollow, given that Sinclaire had the opportunity to challenge the warning but did not. Instead, she resigned and trotted off to court.

Employers can take comfort from this decision. The case makes clear they can offer alternatives other than traditional discipline without those alternatives being deemed a constructive dismissal. Further, the employer’s employment contract was held to permit a more severe warning, despite a different past practice.

The Sinclaire decision also serves as a warning to employees that a threat of being fired in the future is not likely grounds to quit.

I offer the following advice to employers to avoid constructive dismissal claims:

  1. Draft employment contracts that permit you the flexibility to impose alternatives to discipline, as well as a range of disciplinary responses. Intrawest succeeded by relying on a contract that provided for such a broad scope.
  2. Provide employees with options as to how to address performance issues. The Court was convinced by the fact that Sinclaire was given a choice about whether to stay (and dramatically improve performance) or to take a leave of absence.
  3. Act in accordance with your policies and your contract’s wording. Intrawest had the upper hand because Sinclaire did not, as was her right, challenge the discipline. Instead, she walked away — at her peril.