Northern Exposure

Demotion Inappropriate Response to Poor Performance

By David T. McDonald

“Cause” for termination is a difficult standard to meet in Canada. So what are your alternatives if you don’t have cause? Warning, suspension, demotion, transfer? In Haddock v. Thrifty Foods (2003) Limited and Quadcam Holdings Ltd., the British Columbia Supreme Court has recently said a demotion may not be a proper response. Further, a warning must be “current” to disentitle an employee to damages.

Employee’s declining performance
The employee was a grocery store department manager. He had worked his way up to that position over the course of 16 years. For the first 14 years of his employment, he was a good employee. But he started abusing alcohol, resulting in poor performance in the last two years.

In October 2003, the manager was warned in no uncertain terms that the effective performance of his duties was jeopardized by issues in his private life and he was at risk of losing his job. The warning letter also referred to the employer’s perception of a dependency problem and offered support for treatment of the problem. The letter clearly outlined performance expectations, including attending work on time and performing the various duties of his middle management position. He signed and accepted the document.

There were no further discipline letters until August 2004 when the manager overindulged in alcohol at a weekend softball tournament and didn’t attend work on time on Monday. He acknowledged that he had screwed up. In response, the employer offered to demote the manager to a nonmanagement position or explore the possibility of a transfer to another store.

When the employer confirmed that a transfer wasn’t possible, the employer further encouraged him to apply for short-term disability. After a couple of weeks of not hearing from the employee, the employer terminated his employment.

Demotion not proper
The first question before the court was whether the demotion offer amounted to constructive dismissal. The court determined that there would have been a financial cost associated with the demotion — a 16 percent to 20 percent swing in income.

The court further found that the duties of a nonmanagerial position within the store were significantly diminished from his managerial role. This constituted a substantial change to the essential terms of the employment contract or, in other words, a constructive dismissal. As such, the demotion wasn’t a proper response.

Insufficiency of warning
The next question was whether the employer was in a position to have terminated the manager’s employment given the previous warnings.
Here, the court considered whether the 2003 warning, although sufficient at the time it was given to advise the employee that his job was in jeopardy, was “current” in August 2004 when the demotion conversation occurred. The court found that the passage of time and lack of any other warnings, verbal or written, between October 2003 and August 2004 meant that the October 2003 warning wasn’t sufficiently current to meet the requirement that the employee must understand that his job was in jeopardy at the time of termination.

The court determined that a further warning was needed before the employer could terminate his employment without any notice. The lack of a final warning meant that the employee was entitled to damages.

Meaning for employers
This decision shows that employers can’t rely on warnings given some months or years earlier to perpetually keep an employee on notice that his or her job is in jeopardy for continued failure to meet standards.

Periods of poor performance that go without further warnings can effectively reset the clock, requiring employers to go through a whole new process outlining performance expectations. This outlines the need for employers to have regular reviews of employee conduct, particularly when dealing with poor-performing employees. This likely applies throughout the country.

Further, demotions to which an employee doesn’t agree may result in a successful constructive dismissal action.