eCaseNote 2011 No. 01

Employers Beware: Employee Permitted to Remain in Employment after Constructive Dismissal 

Russo v. Kerr, 2010 ONSC 6053

In an important case for employees, the Superior Court of Justice in Ontario recently awarded damages for constructive dismissal to an employee, even though he remained in his employment after the terms of his contract had been materially altered. The Court stated that the employee could remain for the reasonable notice period in order to mitigate his damages. If an employee remains beyond the reasonable notice period with the consent of the employer, then it may be concluded that the employee had accepted a new contract of employment under the changed terms.  

A reasonable notice period refers to a period in which a terminated employee (whether constructively or in fact) is entitled to compensation from an employer while he or she searches for comparable employment.  Mitigation is the requirement that a person suffering damage by negligence or breach of contract take reasonable steps to reduce his or her damages, injuries or costs.  

In this case, Russo was employed with Kerr for 37 years. He started working with the Company when he was 16 and dropped out of school to continue to work there on a full time basis. Facing financial difficulty, the Company hired a new president, who quickly discovered that the remuneration packages for all employees were in excess of what he regarded as competitive in the marketplace. At that time, Russo earned approximately $114,000.00 annually. The new president asked all employees to accept a 10% reduction in their compensation packages. However, he reduced Russo’s salary to $60,000.00 and discontinued his bonus. Russo retained legal counsel, who wrote to the Company stating that Russo did not agree to the contractual changes in his employment contract.   Nevertheless, Russo remained in his employment as a means of mitigating his damages.  

  The Company acknowledged that a constructive dismissal had occurred, but stated that Russo must be deemed to have condoned or accepted the new terms by staying in his position. The Company further claimed that Russo was obliged within a reasonable period of time to elect whether to accept the new terms or accept the dismissal. If Russo accepted the dismissal, he was obliged to leave his employment. Since he did not, he must be deemed to have accepted the new terms.   

The Court disagreed with the Company and found that, where an employer attempts to vary material terms of an employment contract, the employee can elect to: (1) accept the variation expressly or impliedly ‐ in which case there is a new contract; (2) he or she may refuse to accept it ‐ whereby the employee has a right to sue for damages for breach of contract; or (3) he or she may refuse to accept it and continue in his or her employment.  

In the Court’s view, there was no reason in principle why Russo could not stay in his employment to mitigate his damages. Russo had already expressed through a letter sent by his legal counsel that he did not accept the changes in his employment contract and that he felt the changes amounted to constructive dismissal. When Russo stayed in his position under the reduced terms, the Company had no right to assume that he had elected to do so under the new contract.  Once the Company was aware that Russo did not accept the terms, it could have told Russ to leave the workplace or kept the old terms and conditions in place for the reasonable notice period.  Neither of these alternative actions was taken.   

This case confirms that employees may, in appropriate circumstances, remain in their employment after a constructive dismissal has occurred as a damages mitigation measure, as long as they only remain for the reasonable notice period.  

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