Employee wins constructive dismissal suit without leaving his job

Court rules employee can mitigate constructive dismissal damages by continuing to work as long as it’s clear the employee does not consent to the changes
|employmentlawtoday.com|Last Updated: 12/01/2010

An Ontario employee has been awarded almost two years’ pay at his old salary in lieu of notice for constructive dismissal, despite the fact he continued to work uninterrupted for the employer in his regular position after a significant pay cut.

Lorenzo Russo, 53, was a warehouse manager for candy manufacturer Kerr Bros. in Toronto. He worked for Kerr’s for 37 years, since he was 16 years old, and had been the warehouse manager for 32 years.

In April 2009, Kerr’s was going through some financial difficulties. The president asked all employees to take a 10 per cent pay cut and he also dissolved the pension plan to keep the company in business. He also felt four employees, including Russo, were being paid too much for their positions and asked them to take a further decrease. Russo’s compensation, which had been $85,000 in salary plus a $30,000 lump sum payment annually, was reduced to $60,000 a year with no bonus in July 2009.

Employee sued for constructive dismissal but continued working

Russo had his legal counsel write a letter to Kerr’s, dated July 27, 2009, pointing out that the salary cut was a unilateral change to the terms and conditions of employment. He filed a motion for constructive dismissal, asking for 28 months’ pay in lieu of notice. However, he continued to work as warehouse manager under the reduced salary without interruption.

Kerr’s agreed there were conditions for constructive dismissal initially, but argued Russo condoned or accepted the new terms of the employment contract by staying on in the position. He had two choices, said Kerr’s: leave his employment and sue for constructive dismissal or stay on and accept the new terms.

The Ontario Superior Court of Justice found it didn’t matter that Russo continued working after the change in pay, since he made it clear with the letter from his counsel that he did not consent to the change and deemed it as constructive dismissal. The court accepted Russo’s argument that he only continued working in order to mitigate his damages.

The court found Kerr’s could have asked Russo to leave the workplace when he refused to accept the new terms, but instead did nothing and allowed him to stay, knowing he believed he had been constructively dismissed.

“(Kerr’s) was clearly on notice that (Russo) took the position that he had been constructively dismissed and that he did not consent to the change in his terms and conditions of employment,” said the court. “Thus, when (Russo) remained in the workplace under the reduced terms, (Kerr’s) had no right to assume (he) had elected to do so under a new contract of employment.”

The court found an employee who is constructively dismissed can remain at work under the changed terms to mitigate damages for the period of reasonable notice. If the employee remains past the reasonable notice period, then he can be considered to have accepted a new employment contract under the changed terms, said the court.

The court found 22 months was an appropriate period of notice for Russo, so he was well within the time frame for mitigating his damages while still claiming constructive dismissal. However, since the notice period hadn’t yet expired — the decision came in November — the court ordered Kerr’s to pay Russo the difference between his old and new salary through to the end of October, equal to $81,965.04. It deferred payment on the remaining few months until the end of the notice period to see if Russo found other employment with a different salary that could affect the amount of damages.

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