Resigning to avoid being demoted, or fired, can often cause more trouble than it’s worth for workers

That old saw has just been enacted, twice in rapid succession, in our political scene.

Last week, Justin Trudeau resigned before the guillotine descended. It reminded me of a wise teaching from my old friend and former vice-president of HR at Shaw, Bill MacDonald: “If you are being run out of town, make it look like you are leading the parade.”

Trudeau’s announced exit quickly followed that of Chrystia Freeland. International media trumpeted her “resignation” as minister of finance — except that she did not resign but was fired, or at least demoted, by Trudeau, who told her she was being removed as finance minister and replaced, as he then believed, by Mark Carney.

Rather than accept the humiliating comedown from the most senior cabinet position to a lesser portfolio, Freeland “resigned” amidst great public clamour, and did her best to bring Trudeau down with her by releasing the best piece of writing she drafted in her many years in office. And by writing the damaging letter calumnizing Trudeau, she distracted everyone’s attention away from the fact that she had been terminated.

What does any of this have to do with employment law?

Oftentimes employers believe they are doing an employee a favour by providing them the option of resigning rather than being fired. Other times, less magnanimously, and in order to avoid a wrongful dismissal action, an employer threatens that, if the employee does not resign, he or she will face the career damaging consequence (or so they claim) of being fired.

Employees resigning under such circumstances have indeed been fired and are entitled to sue for wrongful dismissal. The problem — and the reason why no employee should resign in such circumstances — is that the employer may deny having made the threat and claim the employee’s resignation was entirely voluntary. They might even produce the letter of resignation as evidence. The employer may use the reason they intended to fire the employee to their advantage, asserting that the employee resigned because they were not doing well in the workplace and did not wish to be there any longer.

The employee will have no such problem if they are fired, as they will then have the letter of dismissal as evidence.

What if, like Trudeau, an employee was not actually fired, but resigned to avoid their imminent dismissal? That would be a voluntary resignation, since the employee could have stayed longer, and was not provided an ultimatum such that they had no choice but to leave the workplace.

And what if, like Freeland, an employee resigned in response to a demotion?

That is a classic constructive dismissal and, if she were an employee, would have allowed her to resign her employment and sue as if she had been fired.

Not every demotion is a constructive dismissal. It has to be a fundamental change to the terms of employment. In other words, it has to be a significant demotion that was not contemplated in the agreement between the parties.

An example of a demotion that is not one at all is where an employee is moved to a lesser position in a different area as part of their grooming for an ultimately more senior management position. Or, having to report to someone who used to be their subordinate, say, or to someone lower in the hierarchy than the position they previously reported to, which, although embarrassing, may not be a major demotion in and of itself.

A more common problem is that, even if an employee is constructively dismissed, there remains the issue of mitigation. The courts have found that, instead of resigning in response to a constructive dismissal, employees may have an obligation to keep working to mitigate their damages.

Generally, the rule is that unless the demotion is either humiliating or accompanied by a remuneration reduction, the employee must keep working and, if they resign, they will lose their constructive dismissal case.

Consider the implications: if the employee resigns and sues for constructive dismissal and the court decides the employee should have remained working to mitigate damages, they will be unemployed for a number of months following the resignation, recover nothing and be saddled not only with their own legal fees but with a portion of the legal fees of the successful employer.

That is why no employee should ever claim constructive dismissal without sound legal advice. It is also why a lawyer should not provide that advice without a strong understanding of the case law, to avoid being sued for advising the employee to resign, only to have a court determine that all of those damages the employee suffers when they lose their case are actually the fault of their lawyer.