Ontario Court Says Employee Can Sue Employer While Still Employed


For most employers, the prospect of a current employee suing them during the employment relationship is simply outlandish. For the most part, the courts have agreed that a dispute or complaint by an employee that escalates into a law suit is a sign that the employee-employer relationship is irreparably harmed. There are exceptions of course, such as recent class actions for overtime pay, but in a recent Ontario Superior Court of Justice decision, Russo v. Kerr, that general principle was stretched to its limits.

Russo, who was 53 years of age, had been employed by Kerr Bros., a manufacturer of candy products, for 37 years. In fact, Kerr was the only employer Russo had ever had. He had no education to speak of (having never graduated high school) and no training other than what he had received on the job. Since 1977, he had been Kerr’s warehouse manager. Russo made a good salary in that job, earning approximately $115,000 annually, along with other benefits, such a pension.

Kerr had been experiencing financial difficulties for some time. In 2009, an analysis of the viability of the company was undertaken. It was found that many employees, including Russo, were earning far above market rate. In April 2009, Kerr sought the consent of all employees to accept a 10% reduction in compensation and to dissolve the pension plan. However, after that was done, Kerr determined that further cuts were necessary. As a result, Russo’s salary was unilaterally reduced to $60,000.

Russo did not quit, however he hired a lawyer, who wrote a demand letter to Kerr. Russo otherwise continued his employment in the same fashion as he had been doing for many years, albeit at a greatly reduced wage. When Kerr did not respond positively to Russo’s demands, Russo sued Kerr for constructive dismissal.

At trial, it was Russo’s position that he was merely mitigating his damages by continuing to report to work. Kerr on the other hand admitted that the unilateral reduction in salary could have constituted constructive dismissal, except that Russo had condoned or accepted the new terms of his employment by remaining employed by Kerr (despite the fact that the demand letter sent by Russo’s counsel explicitly stated that Russo did not accept the new terms of his employment). Kerr argued that as a matter of law, Russo was required, within a reasonable time, to accept the new terms or elect to quit and claim he was constructively dismissed. Since he had not, Kerr argued that Russo should be found to have accepted the new terms.

The Court disagreed with Kerr and, after reviewing various appellate cases from Ontario, found that there was “no reason in principle” why Russo could not take the course of action that he did. Therefore, Russo was entitled to remain in his position with Kerr while carrying on a lawsuit against it. Ironically, the Court also found that an employee in Russo’s position could only remain in the workplace for the period of reasonable notice, and that if he or she remained longer, then it would be presumed that the employee accepted the new terms. Thus, Russo lost his job in any event rather than being able to continue to work, albeit at the lower wage.

This case has not yet been considered in BC and it will certainly be interesting to see how the case law develops in light of this decision. Given the overall result, and the fact that most employees would prefer not to remain with an employer who makes such fundamental and detrimental changes to the employment terms, we do not expect to see a lot of employees following Mr. Russo’s example. Russo was in a unique situation in that he had no other prospects of employment because of his limited education and training, not to mention the impact of the economic downturn on the job market. The Russo v. Kerr decision may however, have an impact on how courts approach the issue of mitigation in constructive dismissal cases.

There are steps that companies can take when faced with economic pressures that require them to make fundamental and detrimental changes to employment terms of their employees. In order to avoid the problems that Kerr faced, we advise our clients that they should give their employees advance notice of the changes, equal to the amount of ‘reasonable notice’ of termination they would be entitled to. The employees are also informed that if they do not accept the new terms after the notice, that their employment would be terminated.

If the reasons for the changes are financially motivated, and especially if more than one employee is affected, then there is no reason for the employee to be able to argue that the employer-employee relationship is fundamentally damaged by the notice. In this way, the employee is given ‘working’ notice of the change, and if they quit earlier, the employer is able to argue that the employee failed to mitigate his damages.