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Russo v. Kerr Bros.: What Happens When an Employee Who is Constructively Dismissed Keeps Working?

Thanks to one of my LLM students (Andrew Langille, who has his own very interesting blog called Youth and Work) for passing along word of an interesting recent decision from Ontario called Russo v. Kerr Bros. Here is the decision.

The employer unilaterally cut the employee’s pay, apparently due to financial difficulties being experienced by the company.  The cut took the compensation from about $114,000 to about $60,000. There is no doubt that the pay cut was large enough to constitute a constructive dismissal.

Usually employees respond to that sort of change by quitting, and then sometimes suing for constructive dismissal.   The twist in this case was that the employee did not quit.  Instead, the employee’s lawyer told the employer very clearly that the employee does not accept the pay cut, and that the pay cut amounts to a constructive dismissal.  However, the employee kept coming to work under the reduced compensation.  The employer acted as if that meant the employee accepted the changed contract.  However, the employee then sued for constructive dismissal–while he continued to work for the employer!

He argued that he had been constructively dismissed when his pay was unilaterally cut by the employer, but he had continued to work (under the new reduced pay scheme) as part of his “duty to mitigate” his losses.  This is turning Evans v, Teamsters on its head—in that case, the Supreme Court of Canada ruled that an employee has a duty to mitigate her losses by continuing to work for the employer who has fired her, if the employer so requests.  Here, the employee said, metaphorically, “just following the Supreme Court’s instructions”.

The employer argued that by continuing to work under the reduced compensation scheme, the employee had consented to the employer’s unilateral revision of the contract.

(Query for employment law students:  Was there any new consideration given to the employee, even assuming he had “accepted” the revision?  i.e.  even if the employee had “accepted” the change, would that change have been enforceable considering the requirement to give the employee new consideration in exchange for axing his pay?)

The Court found in favour of the employee.  The employee had clearly informed the employer that he did not accept the change to his contract and that if the employer cut his pay, it would amount to a constructive dismissal.  Yet the employer did this anyhow.  Here is what the Court said:

Once the [employer] had been told that the plaintiff accepted that a constructive dismissal occurred, and that he did not accept the new terms and conditions, the [employer] could have told the plaintiff to leave the workplace.  Alternatively, the [employer] could have kept the old terms and conditions in place for the period of reasonable  notice.  However, the employer did neither.  It simply allowed the plaintiff to remain in the workplace knowing that the plaintiff took the position that he had been constructively dismissed, and that he did not accept the new terms.

In the end, the employee is entitled to remain in the workplace after he is constructively dismissed, as a means of mitigating his loss, for the entire period of reasonable notice.  The employer can tell him to get lost, of course, but they would have to pay out the reasonable notice damages to do so.

One of the great things about this case is that the decision was rendered while the notice period was still in effect and the employee was still at work!  The notice period was set at 22 months, which won’t expire until February 2011.  So the court ordered the employer to pay the damages for the period since his pay was cut to the date of the decision, and then the parties are to assess what other damages are owing up to Feb. 2011 once that time comes.

Like Wronko v. Western Inventory, this case emphasizes the need for Employers and HRM professionals to understand the intricacies of employment law, lest they be punished in the courts.

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3 Responses to Russo v. Kerr Bros.: What Happens When an Employee Who is Constructively Dismissed Keeps Working?

  1. Ryan Reply

    November 24, 2010 at 8:55 pm

    Wow, very interesting case, but the plaintiff’s lawyer had clearly done more employment law homework than the defendant’s.

    If I were the defendant’s lawyer, I would have argued fresh consideration in the form of US-style doctrine of continued employment. It has largely been rejected in Canada, however a sliver of it lives on in Techform v. Wolda (2001) 56 O.R. (3d) 1 (CA). In Techform, the Court of Appeal said that continued employment _could_ be valid consideration if evidence clearly established that termination would have occurred but for new terms of employment and that those new terms restrained an employer’s implicit right to terminate upon reasonable notice.

    So in this case, the employer could have cut the plaintiff’s pay, but included a generous termination provision that went beyond common law entitlement (e.g. 25 months lump sum not subject to mitigation). If the employee refused to accept those terms but continued to work, the employer would then have to argue detrimental reliance on those actions, notwithstanding the employee’s protest. As the Court of Appeal noted in Techform, “I would simply note, as did Weiler J.A. in Francis at pp. 84–5, that there is a growing trend in Canada towards adopting the United States position of ‘protecting promises which modify an existing duty to the extent that there has been subsequent reliance on them by the person in receipt of the promise’”.

    It is a very tenuous and fact-specific argument to make, and I think even the Court of Appeal is uncomfortable with the doctrine of continued employment, given comments made about Techform in Hobbs v. TDI… but I think it would have been a better argument to make, especially in light of the economic circumstances and the SCC’s recent trifecta of employee screw-over cases in Keays/Evans/Hydro Quebec, rather to walk straight into the trap set by Wronko/Evans.

  2. Dennis Buchanan Reply

    November 30, 2010 at 11:02 am

    Techform has been repeatedly distinguished, including twice by the Court of Appeal (also see Braiden), essentially being interpreted as a fact-based finding that the employer had actually taken upon itself a contractual obligation not to terminate for a period of time.

    Here’s an interesting Mifsud/Evans thought that I’ve been toying with: Statutory minimums. SInce it’s clearly possible – as in this case – for an employee to take the position that he/she has been constructively dismissed even though he/she continued working to mitigate a loss, and the Employment Standards Act sets up minimum entitlements on termination which are *not subject to mitigation*, is it possible to have a Mifsud-style case where the employee actually stays in the job, making similar remuneration, but nonetheless demand full entitlements under the ESA (which can be quite substantial if the severance provisions are triggered)? In addition, the consequences of the anti-reprisal provisions of the Act seem pretty onerous for an employer in such a circumstance.

    Usually, we think of the Mifsud/Evans approach to mitigation as being a pretty employer-friendly doctrine, effectively extending the employer’s ability to make unilateral changes to the employment relationship beyond their actual contractual entitlements. Yet it seems that it may be creating a bit of a minefield for employers as well.

  3. Monty Reply

    March 10, 2011 at 6:57 pm

    With respect to Dennis’ last email, he asks whether the employee can have a Mifsud style case where the employee stays in his job and demands full entitlements under the ESA (which are not subject to mitigation). i believe the answer is “no”. See sections 56(1)(b) and 63(1)(b) of the ESA. In those sections, not only must an employee demonstrate a constructive dismissal, the employee must also “resign”… “in response within a reasonable period.” The intent is that the employee must actually resign from his employment before a “termination” or “severance” within the meaning of the ESA is effective and the payments are owing.

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