Duty to Mitigate Damages: What Acquiring Companies Need to Know
It is well-established law that employees who have been terminated have a duty to mitigate their damages by seeking and accepting comparable employment. However, can an employee who failed to accept an offer for re-employment by a company acquiring their current employer be said to have met that requirement? In Ontario, a recent decision of the Superior Court of Justice suggests that a rejection of such an offer may not always constitute a failure to mitigate damages.
As such, while it may be easy to get caught up in the mountains of due diligence and tax implications when structuring a merger and acquisition, or other similar transaction, acquirers should remember to carefully consider employment law to avoid a heightened cost of terminating employees. Specifically, the Court in Giduturi v LG Electronics Canada Inc.[1], tells successor employers that the timing of an offer of re-employment crucial.
BACKGROUND
Mr. Giduturi was a full-time employee of LG Electronics Canada (“LG”) from September 28, 2007, until his termination on March 12, 2021. Mr. Giduturi’s employment contract stated that he would receive group medical benefits funded by LG, six paid days of sick leave, and a five percent bonus contingent on both the company’s and Mr. Giduturi’s performance.
At the start of 2021, LG made the business decision to outsource their warehouse operations to a company named Pantos. The LG employees were made to understand that they would not be negatively impacted by the transition as they would maintain the same terms of employment including, but not limited to, their role and compensation.
On January 11, 2021, Mr. Giduturi received his offer for re-employment from Pantos. The offer provided that the contract was for an “at-will employment relationship”, group medical benefits would now cost $169.98 per month, and there would be no paid sick leave. The “at-will” language in the offer was later abandoned when Pantos was made aware that such provisions are unenforceable as a matter of law. Mr. Giduturi also had concerns that were emotional rather than contractual in nature.
Mr. Giduturi spoke with Pantos’ representatives about his concerns regarding the offer of employment. The parties were unable to reach an agreement as to terms, and ultimately, Mr. Giduturi declined the offer around February 10, 2021. Shortly thereafter, Pantos filled the position offered to him.
Approximately a month after failing to accept Pantos’ offer, Mr. Giduturi received a letter of termination.
PARTIES’ POSITIONS
- Mr. Giduturi
Mr. Giduturi argued that because the terms of the offer were not comparable, and the offer was made and withdrawn before his termination, his duty to mitigate was not engaged by Pantos’ offer.
2. LG Electronics Canada Inc.
LG claimed that rejecting the offer from Pantos constituted a failure to mitigate. LG relied on the decision Hickey v Christie & Walther Communication Limited[2] where a successor employer provided an employee with three job offers and the employee rejected each. In that decision, the Court found that the timing of the offer was not a determining factor.
COURT’S ANALYSIS
The Court re-iterated the order of events in this case to conclude that at the time of termination, Mr. Giduturi was unable to mitigate his damages through the offer of re-employment. Mr. Giduturi did not have the opportunity to mitigate his losses by accepting, or even considering, the offer made by Pantos, since the offer was made and rejected prior to Mr. Giduturi being notified that he might be terminated. Moreover, the position was not available for acceptance at the time of termination, as Pantos filled the role upon Mr. Giduturi’s rejection.
In support of this position, the Court relied on an earlier decision of the Superior Court of Justice, Dussault v Imperial Oil Limited.[3] In this decision, the Court states:
it is fatal to an employer’s argument that an employee failed to mitigate his damages by working for his old employer where the offer of alternative employment was made before the termination[4]
The Court subsequently distinguished the decision relied upon by LG. In Hickey, the only reason that the offer of re-employment was made prior to termination was because the employer extended the employee’s employment on good faith to allow the purchasing employer and the employee to reach agreeable terms. It would have been unjust to allow the employer’s good faith efforts to adversely impact the outcome.
Based on the aforementioned analysis, the Court found that the duty to mitigate was not engaged by Pantos’ offer.
In addition to the timing of the offer and rejection, the Court also remarked that the offer to continue employment was on materially different terms. However, it is unclear which terms and to what extent this statement impacted into the Court’s conclusion that the duty to mitigate was not engaged.
KEY TAKEAWAYS
While this decision may be cited by some to suggest that failure to accept any offer of re-employment from a purchasing employer would not trigger the duty to mitigate, this is not the case. Rather, this decision is consistent with the extensive body of employment case law which holds that whether duty to mitigate is engaged is a fact specific analysis whereby the Court will determine if an employee had the opportunity to seek and accept active offers of employment with comparable terms at the time of termination.
In structuring a merger and acquisition, or other similar corporate restructuring, acquirers should be sure to:
(i) ensure that at the time of the employee’s termination, their offer of re-employment is open to the employee to accept; and
(ii) the offer of employment contains comparable terms of employment.
If you have any questions or need assistance in drafting offers of re-employment, please contact Elliot Saccucci at esaccucci@ln.law.