Superior Court finds circumstances unreasonable to mitigate reasonable notice

April 30, 2018

Summary

  • The Ontario Superior Court of Justice (the “Court”), in a recent summary judgment decision, has provided further clarity with respect to the duty to mitigate by accepting new employment in the context of a sale of business.
  • Imperial Oil Limited ("Imperial") terminated the plaintiffs’ employment in connection with the sale of part of its business to Mac's Convenience Stores Inc. ("Mac's"). The central issue in the case was whether the plaintiffs’ entitlements to reasonable notice could be reduced as a result of a failure to mitigate because they had turned down job offers from Mac’s.
  • For the reasons outlined below, the Court found that the plaintiffs, who were both long service, managerial level employees, did not have a duty to mitigate their damages by accepting Mac’s offers of employment.
  • Taking into account their individual circumstances, each plaintiff was consequently awarded 26 months' notice, with the Court also effectively reaffirming that there is no 24-month "cap" on damages in lieu of reasonable notice of termination.

Key Facts Regarding the Offers of Employment:

  • The employees were kept apprised of the ongoing negotiations between Imperial and Mac’s in the early phases, but did not receive information on how the terms of their employment would vary after the sale of Imperial’s business. In particular, they were not guaranteed a permanent, comparable salary, they were informed that they would receive reduced benefits, their years of services with Imperial would not be recognized by Mac's, and their annual vacation entitlements would be reduced.
  • Mac’s offered to compensate the plaintiffs for reduced benefits by way of a "lump sum gratuitous payment" but did not disclose the amount of the payment.
  • Mac’s offered to continue the plaintiffs’ base salaries for 18 months but did not indicate what their salaries would be after that time period.
  • The plaintiffs declined Mac’s job offers because they viewed the terms of employment offered as less favourable than their terms of employment with Imperial.

Key Findings:

  • Advance Knowledge of Sale Does Not Reduce Notice Period. The fact that the plaintiffs were aware of the sale in advance was not a proper basis for shortening the notice period, as was argued by Imperial. To be effective, the Court held that notice of termination must be clear and unambiguous. In this case, the employees' knowledge that a sale of the business was being negotiated did not constitute clear notice of termination. In addition, the plaintiffs would not have known to look for alternative work in these circumstances because they were told comparable employment would be offered to them by Mac’s.
  • No Duty to Mitigate - Refusal of Job Offers was Reasonable. The Court concluded that it would not be reasonable to require the plaintiffs to mitigate their damages by accepting Mac's offers, in light of the following factors:
    1. Mac's offers of employment did not provide for terms of employment comparable to those they enjoyed with Imperial, particularly in respect of salary and benefits;
    2. The offers were made by Mac’s before the plaintiffs’ employment was terminated (rather than at the time of termination or after). The Court found that an employer cannot successfully argue that an employee failed to mitigate his or her damages by working for an employer where the offer of alternative employment was made before termination;
    3. The offers indicated that Mac’s expected the plaintiffs to sign releases provided by Imperial, creating a link between both documents. The releases were to be signed in exchange for an undisclosed "lump sum gratuitous payment." The Court found that it was reasonable for the plaintiffs to refuse to sign the releases because in doing so, they would have relinquished the option to pursue any shortfall in their entitlement to damages in lieu of notice; this, by extension, made it reasonable for the plaintiffs to turn down the job offers from Mac’s; and
    4. It would not be reasonable to require the plaintiffs to accept an offer that did not recognize their years of service with Imperial. In a sale of business context, it is an implied term that years of service will be recognized by the purchaser; and, where there is an express term to the contrary, it is open to the employee to reject the offer.

Risk

  • It is a common misconception, in a sale of business context, that where a purchaser offers employment to the vendor’s employees in connection with the sale, those employees must accept such offers in order to mitigate their damages from the loss of their employment with the vendor. Vendors should be aware that employees may not be expected to mitigate their damages by accepting employment on terms that are either not made clear or are not comparable to their current terms of employment.
  • Whether there is an obligation to mitigate damages by accepting an offer of employment with a purchaser is a fact-specific inquiry that will vary in each case.
  • It has been confirmed that there is no longer a 24-month cap on the reasonable notice period. Although awards in excess of 24 months’ notice are rare, the potential for liability exceeding 24 months’ is certainly real.

Action

  • Where an employer is contemplating the termination of employment of a long service employee, it should be mindful of the fact that there is no “24-month cap” in assessing any reasonable notice entitlements.
  • Offers of employment in a sale of business context must be reasonable, provide for comparable terms of employment, and be clearly and properly communicated in order for a vendor to be able to argue that its employees should have accepted such offers to mitigate their loss of employment in connection with the sale. The foregoing can and should be negotiated between the parties to the transaction.

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