A June 2023 decision by the Ontario Superior Court of Justice ("ONSC") serves as an important reminder for employers that timing is crucial when trying to limit employment-related liability in a sale of business. In Giduturi v. LG Electronics Canada Inc. [Giduturi], the ONSC held that a wrongfully dismissed employee did not fail to mitigate his damages by declining a job offer from the purchaser of his employer's business, because the purchaser made and withdrew the offer of employment before the employee was terminated from the company that was being sold.
In the employment law context, the "duty to mitigate" means that a dismissed employee must make reasonable efforts to find a new job that is comparable to their old job, and they must accept any comparable job that is offered to them. If an employee breaches this duty, the amount of wrongful dismissal damages that they are entitled to will be reduced or even completely eliminated depending upon the circumstances. That said, the duty to mitigate is only triggered upon termination.
Mr. Giduturi has hired by LG Electronics Canada Inc. ("LG") in September 2007 to work in its warehouse. More than a decade later, on January 4, 2021, LG announced at a meeting that it would be outsourcing operations for the warehouse to a company called Pantos.
At the meeting, LG assured Mr. Giduturi and the other warehouse employees that Pantos would offer them employment on terms that were equivalent to their existing jobs, and that their length of service with LG would be recognized. However, Mr. Giduturi was shocked when Pantos's offer of employment to him stated that it was "not a contract for any specific time of employment" and that it would be an "at-will employment relationship".
Notably, "at-will employment" is a common type of employment relationship in the United States where the employer can dismiss the employee without any notice or pay in lieu of notice, regardless of how long the employee has been employed. Notably, this type of employment relationship does not comply with Ontario law, because the Employment Standards Act, 2000 requires that employees receive prescribed amounts of notice of termination, or pay in lieu of notice, after they complete at least three months of service.
Mr. Giduturi was very concerned that Pantos was offering him "at-will" employment and a benefits plan that was inferior to the one that he currently enjoyed, despite LG assuring that Pantos would offer him employment on equivalent terms. Consequently, Mr. Giduturi raised his concerns with LG and Pantos before he was required to accept or decline the job offer by February 5, 2021. In response, Pantos increased the base salary it was offering Mr. Giduturi to account for its less generous benefits plan, and it removed the "at-will" language from the offer once it became aware that this would not comply with Ontario law. Nonetheless, Mr. Giduturi still declined Pantos's revised offer on February 10, 2021 because he feared that he would not enjoy secure employment with Pantos, among other personal reasons.
After Mr. Giduturi declined Pantos's offer, Pantos quickly hired someone to replace him, and LG subsequently terminated Mr. Giduturi's employment on March 12, 2021. As a result, Mr. Giduturi filed a wrongful dismissal claim against LG, and a summary trial was held. The main issue at trial was whether Mr. Giduturi had failed to mitigate his damages by refusing Pantos's offer of employment.
The Court's Decision
The ONSC ruled in Mr. Giduturi's favour, holding that he did not fail to mitigate his damages when he declined Pantos's offer of employment because the offer was made and withdrawn before LG terminated Mr. Giduturi's employment and therefore before his duty to mitigate had been triggered.
In reaching this conclusion, the ONSC held that it is generally fatal to an employer's argument that an employee failed to mitigate by refusing an offer of employment from the purchaser of the employer's business where the offer was made before the employee's termination. This is because an employee's duty to mitigate is generally not triggered until their employment has actually been terminated, such that they have no duty to accept an offer of comparable employment made before their dismissal.
Applying the law to the facts, the ONSC held that Mr. Giduturi did not fail to mitigate by refusing Pantos's job offer on February 10, 2021, because the offer was made, rejected, and withdrawn prior to LG terminating his employment on March 12, 2021.
In the result, the ONSC awarded Mr. Giduturi 12 months' salary in wrongful dismissal damages, without any reduction related to his duty to mitigate.
The Bottom Line
Giduturi demonstrates that timing is crucial when employers seek to limit their employment-related liability in a sale of business by having the purchaser offer jobs to the seller's employees. Namely, if the purchaser offers employment to the seller's existing employees and they reject those offers prior to their dismissals, then the Company will generally not be able to defend itself by claiming that the employees failed to mitigate their damages.
Although this may seem to suggest that a simple solution is having the purchaser make offers of employment to the seller's existing employees after they are dismissed, it is not so simple from a practical perspective. In particular, continuity of operations and retention of internal knowledge/talent often requires that many if not most of the seller's employees be hired on by the purchaser, and terminating their employment before the purchaser offers them employment may reduce how many employees stay with the business. Accordingly, an employer selling their business should consider requiring the purchaser to offer its existing employee's employment prior to their dismissal, and to also re-offer them employment post-dismissal if they decline the initial offer. This strategy can help ensure that as many employees stay on as required, while also offering protection to the seller in the event that any of the employees refuse the offers.
Nonetheless, every sale of business is different, and employers should seek specific legal advice when planning a sale in order to devise a strategy that is tailored to their specific circumstances. If you have any questions regarding a planned sale of business or need assistance minimizing employment-related liability in a sale of business that is already underway, please do not hesitate to contact us for expert legal advice.