By Alix Herber and Jessica Schnurr
Think an employee in Canada has to quit before suing the employer for constructive dismissal? Think again, says the Ontario Superior Court.
An employee may pursue a constructive dismissal claim without quitting. Traditionally, faced with a unilateral change to a term or condition of employment, an employee had two options: Resign and pursue a claim for constructive dismissal, or accept the change and continue working under the new terms. According to the Ontario Court in Russo v. Kerr Bros. Ltd., that may no longer be the case.
Employee keeps working
Lorenzo Russo was a 53-year-old employee who had worked at Kerr, a candy manufacturer, for 37 years. Holding the position of warehouse manager, Russo made $114,000 annually.
Kerr was experiencing serious financial losses. In April 2009, the new president decided that employees’ compensation packages were more than what was necessary to stay competitive. The president asked all employees to accept a 10 percent reduction in their compensation packages. The president then decided that more changes were required and approached Russo and three other employees, asking them to accept additional pay decreases.
In July 2009, Russo’s salary was reduced by almost half — to $60,000. That same day, the employee hired a lawyer. The lawyer wrote to Kerr, advising that the reduction in salary amounted to constructive dismissal and that Russo didn’t accept the change in compensation.
Rather than quit as most employers would expect, Russo continued to work while suing Kerr for constructive dismissal. His rationale? He was mitigating his damages. In contrast, Kerr argued that by continuing to work, Russo had accepted his new salary.
Court’s decision
Since the parties agreed that the pay reduction was a clear case of constructive dismissal, the action proceeded by way of summary judgment. That meant that the evidence went in by way of affidavit, with no verbal evidence being called. The summary judgment hearing occurred 18 months after the salary change.
The court decided that Russo rejected the changes of his terms of employment. Further, Russo’s continuing to work couldn’t be viewed as acceptance of the new terms. Applying the recent Ontario Court of Appeal decision in Wronko v. Western Inventory, the court concluded that Kerr had a choice in responding to Russo’s claim of constructive dismissal. Once the company was told that the employee didn’t accept the salary change, it should have either:
- asked Russo to leave and provide him with reasonable notice or damages; or
- kept the old terms in place for the period of Russo’s reasonable notice and thereafter re-employed him on the new terms.
Of interest is the court’s conclusion that if an employee chooses to mitigate damages by continuing to work, he may do so only during the period of reasonable notice. If Russo had stayed at work beyond the period of reasonable notice, he would have been deemed to accept the new employment contract under the amended terms.
At the end of the day, the court said Russo was entitled to 22 months of notice. Because the notice period was still ongoing when this decision was rendered, Kerr was ordered to pay damages only for the period of the pay cut up to the decision. The parties are to assess the rest of the damages once the notice period expires.
Significance
Although a decision from Ontario, this may be an important decision for employers all across Canada. If other provinces accept the Ontario court’s conclusions, employers across the country won’t be able to ignore an employee’s clear rejection of a unilateral change to employment terms, no matter how necessary it may be to the viability of the business.
As long as the employee informs the employer that these new terms aren’t acceptable, the employee can continue to work under the new terms without actually accepting them. Employers shouldn’t assume that they are free from liability if an employee continues to work once alterations have been made to the terms of employment.