Candymaker Kerr Bros. Limited ("Kerr") was recently at the wrong end of a significant wrongful dismissal decision.

It is well established that if an employer makes a unilateral change to a fundamental term of an employee's employment, the employee has several options:

  • Accept the change and continue working under the new terms and conditions of employment.
  • Reject the change and insist on the original terms and conditions of employment. If the employer enforces the amended terms, the employee may claim constructive dismissal.
  • Reject the change and insist on the original terms and conditions of employment. If the employer permits the employee to work under the original terms, it may be found to have acquiesced to the employee's position.

In Russo v. Kerr2, the Ontario Superior Court of Justice endorsed a fourth option: an employee may reject the change, continue to work under the altered terms of employment and simultaneously pursue a claim for constructive dismissal.

background facts

Kerr underwent a company-wide restructuring in the summer of 2009. As a result of the restructuring, Lorenzo Russo's ("Russo") salary was reduced from $114,000 to $60,000 and he was no longer eligible to receive a bonus or participate in the pension plan. Russo did not agree to the reduction in compensation and told the Company that the changes constituted constructive dismissal. However, Russo continued to work under the reduced terms and filed a claim for constructive dismissal seeking the difference in compensation.

the decision

The Court found that the reduction in compensation gave rise to a constructive dismissal. The principle issue before the Court was the "characterization" of Russo's continued employment. The Court dismissed Kerr's argument that Russo's continued employment was evidence that he accepted or condoned the new terms of employment. Instead, the Court found that Russo was only continuing to work for Kerr in order to mitigate his damages and awarded him $81,965 plus interest.

According to the Court, there was no reason why Russo could not remain in his employment under the changed terms as a means of mitigating his damages. That said, the Court noted that if Russo had continued to work for Kerr after the period of reasonable notice expired, and not filed a claim, he may have been found to have accepted the new terms of employment.

what Kerr means for employers

This decision serves as a useful reminder to employers to pay close attention to employee reactions to changes in the terms of employment and be prepared to respond in the event that an employee rejects the employer's changes.

Employee consent, express or implied, is required to change a fundamental term or condition of employment without notice. As Kerr discovered, an employee can remain in his/her employment following the change without consenting to the change. To avoid any ambiguity, an employer should consider seeking a signed acknowledgment from an employee to the amended terms of employment.

If it is clear that an employee rejects a change to his/her terms of employment, a prudent employer has three options: (i) reinstate the previous terms (i.e. change course); (ii) reinstate the previous terms and then provide notice of termination with an offer of employment on the new terms thereafter; or (iii) continue operating under the new terms of employment and take the risk that the employee brings a claim for constructive dismissal.

Employers should consult a qualified legal professional in advance of amending the terms of an employee's employment.