Court rejects employee's obligation to accept new employment with strings attached

In a recent decision of the Ontario Superior Court of Justice, two plaintiffs were each awarded wrongful dismissal

Court rejects employee's obligation to accept new employment with strings attached

In a recent decision of the Ontario Superior Court of Justice, two plaintiffs were each awarded wrongful dismissal damages in the amount of 26 months reasonable notice. The court also weighed in on an employee’s obligation to mitigate damages by accepting a position with a purchasing company and determined, in this case, the employees were not obliged to accept a position.

The plaintiff’s D and P were employees of Imperial Oil Limited for 39 years and 36 years respectively before their termination. The termination of the two plaintiffs, as well as many other employees, was part of a sale of Imperial’s retail branch to Mac’s. Both plaintiffs held significant responsibilities but neither directly managed any other employees. At the time of their dismissal D was 63 years old and P was 57 years old.

The sale of Imperial Oil’s retail branch included an open dialogue with employees for a year prior to the sale. Most, if not all, employees were offered employment with the purchase Mac’s but at a reduced compensation package. As part of their termination employees were offered a gratuitous lump sum payment representing the difference in salary for 18 months. After the 18 month period both plaintiffs would see their salaries drastically reduced and the contract stipulated that Mac’s would not recognize their years of service with Imperial Oil. D’s salary would be reduced from $190,200 to a range between $85,000 and $102,000. P’s would reduce from $156,700 to a salary between $56,500 and $69,952. Both Plaintiff’s rejected the offer.

In assessing the appropriate reasonable notice period Justice Favreau relied on the typical Bardal factors: character of employment, length of service, age, and the availability of similar employment in light of their experience training and qualifications. A lengthy reasonable notice period is expected with employees of 30+ years of service over the age of 55, but it is noteworthy how the availability of employment was interpreted in light of the employment offer from Mac’s. Imperial Oil asserted that the offer from Mac’s is evidence of the availability of similar employment. Justice Favreau’s assessment of the Mac’s offer back-fired, and it was determined that the offer demonstrated the opposite view. The offer to pay D and P for a limited period of time emphasized the Court’s finding that similar employment would be difficult to find.

It has been found in many cases that it is incumbent on an employee to accept continued employment with the same employer to mitigate damages associated with wrongful dismissal. The Supreme Court of Canada recognized this responsibility and framed the analysis as whether “a reasonable person would accept such an opportunity”. Imperial Oil relied on this premise to assert D and P should have accepted employment with Mac’s to mitigate their damages. The Court rejected this position for a number of reasons including the requirement that the plaintiff’s sign a release, relieving Imperial of further liability, as part of their acceptance. Accepting the offer of employment with Mac’s carried additional restrictions with respect to their ability to pursue Imperial Oil for any shortfall. Neither of the plaintiffs were offered employment with Mac’s once they rejected the initial offer. Furthermore, the offer of employment from Mac’s required relinquishment of their prior years of service.

The Court’s assessment of mitigation is a good lesson for employers that are moving towards the sale of their company. Serious thought must be given as to whether the purchasing company will take on your employees, including the potential termination liabilities stemming from previous service. Arrangements involving new offers of employment with the purchaser are common but the Court’s will look very critically at offers of employment with strings attached, such as restrictions on the previous employer’s liability.

If you are unsure how to manage your employees during the sale of your company, CCP has the expertise to guide you through this process and avoid potential pitfalls. Click here for a list of team members who can assist you.

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