Working from Home an Essential Term in Contract, The Law Times (April 9, 2018 at p 7)

There is a remarkable range of differences in employers’ conduct that has been found to amount to constructive dismissal. In most constructive dismissals, the operative question is whether the unilateral change introduced by the employer to a significant term of the employment contract amounted to its repudiation. A good example is a recent employment case, Hagholm v. Coreio Inc., 2017 ONSC 7713, where the Ontario Superior Court found that the employee’s ability to work 60 per cent from home was an essential term of her oral employment contract and that the employer’s unilateral removal of that term amounted to constructive dismissal.

In Hagholm, Rosemary Hagholm worked for Coreio Inc. and its predecessors for 22 years. During the course of her employment, Hagholm was allowed to work three days a week at home in the Waterloo Region and two days at the office in Vaughan, which located approximately 110 kilometres away from her home. In 2017, Coreio informed Hagholm that she could no longer work from home and ordered her to work five days from the office. Because of the traffic volumes that Ms. Hagholm would have encountered on the 401 highway, it would have added approximately three extra hours to her working day and increased her driving costs. On March 1, 2017, Hagholm — who was 59 years old — resigned her managerial position due to the new work schedule, new reporting requirements and a reduction in her bonus.

Following her involuntary resignation, Hagholm launched a wrongful dismissal lawsuit where she claimed to have been constructively dismissed.

Constructive dismissal can take two forms: either a single unilateral act that breaches an essential term of the contract or a series of acts that, taken together, show that the employer intended to no longer be bound by the contract. The legal test for constructive dismissal has two branches. First, the court must identify an express or implied contract term that has been breached, and then determine whether that breach was sufficiently serious to constitute constructive dismissal.

Hagholm’s lawsuit was adjudicated by way of a summary judgment. Hagholm’s ability to work from home was the biggest factor that the court had to consider in deciding whether or not she was constructively dismissed. The motions judge, Justice James W. Sloan, sided with Hagholm and awarded her 22 months’ salary in lieu of notice, less 1.5 months for a net of 20.5 months’ salary. The deduction of 1.5 months’ salary was due to a possibility that Hagholm may find employment before the expiry of the 20.5 months notice period.

At the motion, Coreio argued that Hagholm’s work from home arrangement was not a term of her employment contract, but rather a preference that it had accommodated. It superadded its argument by asserting that upon being notified of the change to her work schedule, Hagholm took no steps to engage Coreio in a dialogue to discuss alternative arrangement. The court found these arguments legally untenable.

With respect to the former argument, the court found there was evidence that at the time of Hagholm’s hiring, Coreio was aware and acknowledged that there was a considerable distance between her home and the office, and that her ability to work from home three days a week was, in essence, a condition precedent to her agreeing to the employment contract. Even though there was nothing in writing between the parties, the court found there was oral agreement that induced Hagholm to go to work for Coreio. In addition, Hagholm could have argued that the working from home was a term by conduct, which was evinced by the parties’ conduct.

With respect to Coreio’s criticism that Hagholm did not see fit to discuss her concerns regarding new terms of her continued employment, the court opined “this is a two-edged sword and one that falls more heavily on the defendant employer, than on the plaintiff employee.” It appears that Coreio erroneously focused on the effect of and not the breach of an essential contractual term itself. There is no obligation for the wronged employee to engage in a discussion with the offending employer vis-à-vis altered or breached terms. Once the counterparty shows its intention not to be bound by the contract, the innocent party has a choice — it may accept the breach and elect to sue immediately for damages, or it may choose to treat the contract as subsisting, continue to press for performance and bring the action only when the promised performance fails to materialize.

In Hagholm, the court found that Coreio’s letters to Hagholm made it clear that it was not prepared to consider allowing her to continue with her employment, while at the same time working from home. On that basis, the court had no doubt that Coreio breached an essential term of Hagholm’s contract, which allowed her to work from home 60 per cent of the time.

Hagholm re-affirms that if a particularly important contractual term is unilaterally altered or breached, the employee may have his or her remedy. In virtually all cases, the primary burden rests on the employee to establish constructive dismissal.