Think an employee has to quit before suing his or her 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 inRusso v. Kerr Bros. Ltd., that may no longer be the case.

Employee Keeps Working

The plaintiff, 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 the compensation packages for the employees were more than what was necessary to stay competitive. The president asked all employees to accept a 10% 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, Russo hired a lawyer. The lawyer wrote to Kerr advising that the reduction in salary amounted to constructive dismissal and that Russo did not 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.

The Court's Decision

Since the parties agreed that the reduction in compensation 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 could not 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 Kerr was told that Russo did not accept the salary change, Kerr 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 Russo on the new terms.

Of interest is the Court's conclusion that if an employee chooses to mitigate his or her damages by continuing to work, he or she may only do so 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 contract of employment under the amended terms.

At the end of the day, the Court said Russo was entitled to 22 months notice. Because the notice period was still ongoing when this decision was rendered, Kerr was only ordered to pay damages 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 will not be able to ignore an employee's express 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 are not acceptable, the employee can continue to work under the new terms without actually accepting them. Employers should not assume that they are free from liability if an employee continues to work once alterations have been made to the terms of employment.