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Non-profit’s funding challenges lead to constructive dismissal

accountingpaycycleThe Ontario Labour Relations Board (ORB) recently held that a non-profit’s non—payment of wages and funding challenges amounted to constructive dismissal of one of its employees. (See Aundrea Di Giuseppe v Hospice Richmond Hill, 2015 CanLII 56255 (ON LRB)).

Background

The employee was the Executive Director at Hospice Richmond Hill (the “Employer”) for over 8 years. In 2010, the Employer started to receive long-term funding from the Trillium Foundation, and a portion of this grant funded the Executive Director position. March 2014 was the last time the Employer used this grant to pay the Executive Director. Thereafter, the Employer used its General Account to fund the Executive Director’s wages.

However, the Employer was experiencing ongoing financial difficulties. For instance, from January 2 to August 1, 2014, the Employer essentially maxed out its overdraft facilities on its General Account. In some instances, it funded its operations by exceeding its overdraft limit; going into arrears with Canada Revenue Agency for payroll-related amounts; or by relying on one-off cashflows, like its Harmonized Sales Tax (HST) rebate. The ending of the Trillium grant in June 2014 dealt a blow, and the Employer did not secure any alternative funding.

The Employer failed to pay the Executive Director’s wages which were payable on July 31, 2014. Instead, on August 8, 2014, the Employer provided her with a cheque, post-dated to August 21, 2014, and on August 13, 2014, told her that she could cash the cheque as an anticipated HST rebate had been received and deposited.

In a series of email exchanges with the Board Chair between July 30 and July 31, 2014, the Executive Director advised the Board Chair that since the organization was unable pay her bi-weekly wages, was not open to laying her off, and could not assure her that it could fund her wages in the future, she had no option but to resign effective 3 PM on July 31, 2014. The exchange ended with the Board Chair advising that there was no secure funding source for the Executive Director position.

Nonetheless, in its defence, the Employer raised a number of tenuous suggestions about ongoing funding, all of which the OLRB rejected. For example, the Employer said it had advised the Executive Director to do more fundraising. The OLRB found that this was not a means to provide secure funding, and in any event, projected fundraising revenues totalling only $17,000, was inadequate.

The analysis and decision

The OLRB relied on the Employment Standards Act (the ESA), a Supreme Court of Canada case and an OLRB case to frame the issues:

  • Under section 11(1) of the ESA, employers must establish recurring pay periods and pay dates, and pay wages on their due dates.
  • An employer’s breach of a fundamental term of the employment contract may constitute constructive dismissal.
  • Consistent payment of wages is a fundamental term of any employment contract and in appropriate cases, failure to consistently pay wages in a timely fashion may constitute constructive dismissal under the ESA.
  • Even a single instance of missed wage payment, depending on the facts, could constitute constructive dismissal.
  • Under s.56(1)(b) of the ESA, terminations include constructive dismissals.
  • If an employee resigns within a reasonable period of being constructively dismissed, the employee will be entitled to termination pay as outlined in s.57 of the ESA.

The OLRB found that:

  • The Employer breached s.11(1) of the ESA when it did not pay the Executive Director on July 31, 2014.
  • At 31 July 2014, the organization had no concrete plans to address its financial instability. Specifically, the organization had no means of ensuring that it could meet its future payroll obligations.
  • The Employer’s failure to pay the Executive Director on July 31, 2014, the absence of funding for its payroll obligations to the Executive Director, and the uncertainty and unaddressed issues of future funding, constituted a unilateral, fundamental and substantial change to the Executive Director’s employment contract.
  • The Employer had constructively dismissed the Executive Director.
  • When the Executive Director resigned on July 31, 2014, she had no way of predicting when she would next be paid. She was not required to continue operating under the uncertainty about when – or whether – her wages would be paid. She had resigned within a reasonable period of being constructively dismissed.

The OLRB ordered the Employer to pay the Executive Director termination pay pursuant to the ESA.

The lessons

This case shows how easy it is to run afoul of the ESA, for example by not paying wages when due. More importantly, it shows how constructive dismissal can sometimes arise from unusual circumstances or in unexpected ways. As a result, employers should be extremely careful when making any changes or decisions that may affect an employee’s working conditions or contract, as this may result in unintended consequences.

Apolone Gentles, JD, CPA,CGA, FCCA, Bsc (Hons)

Apolone Gentles is a CPA,CGA and Ontario lawyer and editor with over 20 years of business experience. She has held senior leadership roles in non-profit organizations, leading finance, human resources, information technology and facilities teams. She has also held senior roles in audit and assurance services at a “Big Four” audit firm. Apolone has also lectured in Auditing, Economics and Business at post-secondary schools.
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