Is An Employee Ever Required to Accept a Demotion?

Sometimes, as part of a restructuring, an employer will eliminate some positions and offer the displaced employees new positions. Are displaced employees required to accept a demotion or a pay cut? In a recent decision, the Ontario Court of Appeal tackled the question of whether an employee was required to mitigate his losses by accepting a new position.

In Fillmore v Hercules SLR Inc., Mr. Fillmore was 51 years old and had been employed as the company’s director of purchasing for approximately 19 years. As part of a restructuring, the company decided to terminate Mr. Fillmore, who was provided with a severance offer and a new employment offer. If he signed the severance offer, he would be provided with 8 weeks’ written notice (in accordance with the Employment Standards Act) and an additional 12 weeks’ pay. In addition, he was offered a supervisor position and a pay cut of more than 20 percent. Mr. Fillmore did not accept either offer and began a wrongful dismissal claim.

The company argued that in rejecting the new offer, Mr. Fillmore failed to mitigate his damages. Caselaw suggests that, in the absence of the employee facing a potential hostile atmosphere, embarrassment or humiliation, an employee may be required to mitigate their damages by accepting comparable employment with the employer.

The motion judge found that the new offer of employment was not an offer to work through the notice period: rather it was an offer to accept a demotion. The question the court must answer is whether a reasonable person would have accepted the new offer. The motion judge found that a reasonable person in Mr. Fillmore’s position was not obliged to accept a demotion which risked waiving a claim for wrongful dismissal. The Ontario Court of Appeal agreed.

Lessons to be Learned:

Although in some circumstances, an employee may be required to accept a comparable position with the same employer, reasonable people can disagree on whether the new position is comparable.  It is very important, particularly during a company restructuring, to consult a lawyer about your right to transfer, demote and terminate employees.