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When they cut his pay by $54,000, he sued and won

Posted by on Mar 29, 2011 in Compensation, HR Issues, Moneyville | 0 comments

By Sheryl Smolkin

Read this article and comments at Moneyville.ca 

If your employer cuts your pay by 10 per cent or more, there is a good chance a court will find that this is a constructive dismissal. But as long as you formally dispute the salary reduction, you may still be entitled to significant damages – even if you continue working for the company for less money.

In a recent court case Lorenzo Russo sued Kerr Bros. Limited because his annual compensation was reduced from $114,000 to $60,000. In order to cut his losses, Russo continued to work for the company at the lower salary.

The employer Kerr Bros. Limited is a century-old manufacturer of candy. Between 2000 and 2009 the company reportedly lost over $7.4 million. To try and keep the company afloat, in April 2009 company president Fayez Zakaria dissolved the pension plan and asked all employees to take a 10 per cent salary reduction.

Subsequently Zakaria also decided that four employees including Russo were more significantly overpaid for their skill levels and the market rates of their positions. As a result, his compensation was cut by almost 50 per cent.

Russo’s lawyers sent a letter to Kerr Bros. stating their client had been constructively dismissed and that he would be seeking damages. Even after the letter was sent, Russo continued his employment as a warehouse manager with the same duties and continued to accept his reduced pay.

In a hearing before the Ontario Superior Court of Justice, Russo’s counsel argued that he continued working in order to mitigate his damages and did not condone or accept a new contract of employment based on the lower compensation package.

The company’s lawyer countered that an employee who is constructively dismissed has only two options: to leave his employment and sue for constructive dismissal or to remain employed and accept the new terms.

Mr. Justice Gray decided in favour of Russo. Based on the fact that he was 53 years old and had worked for Kerr Bros. full-time since he was 16 years old, the judge decided that a reasonable period of notice was 22 months, minus the $60,000 annual salary Russo continued receiving during the 18 month period before the hearing.

The net result is that if your pay is cut by 10 per cent or more, even if the company is experiencing financial difficulties you can continue to work at the reduced salary and sue your employer for the pay differential over your reasonable notice period. However, if you do not leave after the reasonable notice period, you will be deemed to have accepted the new salary.

Of course, few organizations will tolerate this situation for long. In most cases if an employee sues for constructive dismissal as a result of a pay cut while still at work, the individual will be terminated and offered a severance package. If the employee believes the settlement is inadequate, he may still continue with the lawsuit.

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