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Employer’s Unilateral Cost Cutting Measures Amount to Constructive Dismissal: Ontario Superior Court of Justice

Posted On: January, 20 2015

Lorenzo Russo had worked for his employer, Kerr Bros. Ltd., for 37 years, making over $100,000 per annum, when his company decided to introduce cost cutting measures in 2009.

Kerr Bros. Ltd. asked its employees to accept a 10% pay cut and unilaterally dissolved their pension plan. Mr. Russo, specifically, was asked to take a further salary cut and his bonus was discontinued, which reduced his total compensation by approximately 50%.

Mr. Russo continued working but put his employer on written notice that he objected to the pay cut and loss of pension and bonus. The employer didn’t respond, and simply allowed Mr. Russo to continue working at reduced pay.

At the hearing of a summary judgment motion in November 2010, the Ontario Superior Court of Justice agreed with Mr. Russo that he had been constructively dismissed: Russo v. Kerr, 2010 ONSC 6053.  The Court held that Kerr Bros. Ltd. had repudiated its employment contract with the Plaintiff and that Mr. Russo was entitled to 22 months notice of his termination, payable at his original rate of pay.

At the hearing, the employer took the position that Mr. Russo had only two options following the pay cut:

  1. accept the new terms and continue working; or
  2. accept the dismissal and leave the job.

The Court disagreed with the employer’s position and found that the Plaintiff had not accepted the new terms of employment by continuing to work for less pay. According to the Court, Mr. Russo was entitled to continue working in order to mitigate his damages. And, by putting his employer on notice of his objection, the Plaintiff had preserved his right to claim that he was constructively dismissed.

 

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