3rd option granted in constructive dismissal

Ontario’s Superior Court of Justice has issued a rare ruling outlining a third option for employees who have been constructively dismissed after siding with a man who opted to keep working while refusing to accept a massive pay cut.

The case, Russo v. Kerr, shows workers have more room to manoeuvre than many employment lawyers thought. It began when plaintiff Lorenzo Russo brought a motion for partial summary judgment in an action that alleged he was constructively dismissed.

The case was complicated by the fact that, in a move rarely seen in the workplace, he opted to remain in his position and claimed it was necessary to mitigate his damages.

The dispute arose in the midst of a set of difficult years at Kerr Bros. Ltd., a candy product manufacturer operating for 114 years that had lost more than $7.4 million over the previous nine years.

Russo, 53, had worked for the company for 37 years after starting out as a shipping clerk before moving to the position of warehouse manager, a position he had held since 1977. He was making about $115,000 annually that consisted of bimonthly payments totalling $85,000 and a $30,000 lump sum. The role involved managing logistics, scheduling shipments, overseeing warehouse staff, and inventory control.

Sometime around April 2009, Fayez Zakaria was brought in to determine whether the company could continue operating. During that process, he concluded that employees were getting paid more than competitive market value and more than the company could afford. He asked workers to take a 10-per-cent pay cut and dissolved a pension plan.

However, Zakaria targeted four specific employees, including Russo, for additional pay concessions and eliminated their bonuses. Russo’s remuneration was reduced to $60,000.
Russo retained a lawyer and remained in his existing position while conducting the same activities and receiving the reduced pay.

In his analysis of arguments in the case, Justice Douglas Gray pointed out that employees are entitled to dispute new terms and conditions of employment and can seek damages accordingly.

He noted that the 2008 Ontario Court of Appeal decision in Wronko v. Western Inventory Service Ltd. outlines options available to an employee after a unilateral amendment to a key aspect of the employment contract. The first option sees the worker accepting the change, whether it be expressly or by acquiescing, which allows employment to continue under the new terms.

The next option, constructive dismissal, allows the employee to reject the alteration and sue for damages.
The final option allows the employee to tell the employer that the new terms aren’t satisfactory.

The employer may then fire the worker and offer re-employment under the altered contract. If the employer fails to do so and allows the person to continue working, the employee can demand enforcement of the terms of the original contract.

With these options in mind, Gray wrote, “In my view, there is no reason in principle why the plaintiff cannot adopt the course of action that he has.”
He notes that a letter from Russo’s counsel to the employer made clear that the change in terms and conditions constitutes constructive dismissal and that the changes weren’t consented to.

“Nothing in counsel’s letter, or in any other communication between the parties, changed that state of affairs,” Gray wrote. “The defendant could not have been under any illusions. The defendant was clearly on notice that the plaintiff took the position that he had been constructively dismissed, and that he did not consent to the changes in his terms and conditions of employment.”

However, the judge also ruled the plaintiff could stay in the workplace to mitigate his damages only for the period of reasonable notice. If he remained in the workplace longer than that, it would then be accepted that he had embraced the new contract of employment under the changed terms after the reasonable notice
period concluded.

Based on those considerations, Gray determined that Russo was entitled to damages for the period of reasonable notice. He found that period to be 22 months and issued partial summary judgment in his favour for nearly $82,000.

Ian Newcombe of Agro Zaffiro LLP in Hamilton, Ont., who acted as counsel to Kerr Bros., noted the decision made clear that Russo’s employment was over at the end of the period of reasonable notice.

“That ruling raises the ultimate irony of the Russo principle,” Newcombe wrote in an e-mail. “Mr. Russo could have enjoyed ongoing employment for the balance of his working life at a reasonably competitive salary (albeit lower than before), and instead what he ended up getting was the equivalent of ‘working notice.’

In other words, he had to work the reasonable notice period, and at its end, while he was still about 10 years away from normal retirement age, he was jobless.”
K.C. Wysynski of Evans Law Firm in Burlington, Ont., who represented Russo, says the case demonstrates the need for counsel to take a measured approach when it comes to constructive dismissal.

“Even for employment lawyers like ourselves, we consider ourselves to be experts in the field, but it’s still a difficult area. And in order to properly advise clients on their rights and entitlements, you really have to have a thorough understanding of the facts of the individual case and of all the relevant case law.”

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