Author: Daniel A. Lublin
Court disapproves of unilateral pay cuts
Men trust their ears less than their eyes. – Herodotus, The Histories 5th c, B.C.
With a new company president poised to reduce operating costs, Lorenzo Russo saw the writing on the wall. As the long time warehouse manager at candy manufacturer Kerr Bros. Limited, Russo was paid in excess of $100,000, a salary considered excessive by his new boss.
After 37 years with the company, changing Russo’s salary was no easy task. After slashing every employee’s pay by 10 per cent and cutting the company’s pension plan, the President then focused on Russo, insisting he take a further pay cut amounting to almost half his usual salary. When Russo refused, his salary was reduced anyway.
Russo responding by retaining a lawyer, who wrote to the company to complain. When a substantial pay cut is imposed by a company, employees typically think in terms of “constructive dismissal,” which permits them to leave and then sue for severance. Here, however, Russo’s lawyer confirmed that Russo did not accept the change to his compensation but instead of leaving and arguing he had been fired, he was going to stay and sue for the difference in pay. Russo and his lawyer hit upon something big in this case.
At a recent trial, the company attempted to defeat Russo’s claim by arguing that, having stayed on with the company after the change to his pay, Russo had effectively condoned that change. However, Russo had made it clear that he was not accepting the change and that by staying at work while he sued, he was simply trying to minimize any losses he had suffered. The court agreed with Russo and awarded him the difference in the pay he would have earned had his salary not been cut at all. Allowing Russo to remain and work, despite his protests, was actually the very evidence that Russo needed to make out his claim.
What does this case mean for Canadian workplaces? Employees are empowered to reject real changes to their jobs since, even in a tough economy, employers cannot simply force significant pay cuts or adverse working conditions on their employees. Importantly, in light of this case, employees do not even need to leave work and go to court in order to protest these types of changes. One strategy is now to stay and sue for damages.