Terminated Employees and the Duty to Mitigate

As most people recognize, unless there exists an employment agreement that says otherwise, an employer is entitled to fire an employee with reasonable notice or pay in lieu of reasonable notice.

If an employee is fired without notice or pay in lieu thereof, the termination is wrongful and in breach of the employment agreement between the employer and the employee.  The employee may sue for damages for wrongful dismissal.

Most people are also aware of the fact that in such circumstances, the terminated employee has an obligation to mitigate his or her damages by making reasonable efforts to find alternate employment.

The situation becomes particularly interesting where the former employer offers the former employee re-employment at the same or a related company.  Is the employee obliged to accept such an offer in mitigation of his or her damages? 

As the recent Ontario Superior Court decision in Ghanny v. 4988326 Ontario Ltd. illustrates, there are circumstances in which a former employee must accept such employment, or re-employment. 

In this case, the Plaintiff was employed by one of a number of related automobile dealerships.  He had served as service manager at Downtown Toyota for 18 years when the ownership decided to streamline the operations and informed him that his employment would be coming to an end within weeks.  However, he was offered the opportunity to relocate to Downtown Suzuki, a related dealership, only a few blocks away, in the same employment capacity and at the same compensation. 

As the Court found, he was told that while he would lose his years of seniority at Downtown Toyota, they would be transferred to Downtown Suzuki and whatever the future of that new dealership, which was apparently struggling financially at the time, his job would not be at risk. 

The Plaintiff refused the offer and sued for wrongful dismissal. 

It was clear that the Plaintiff was not given adequate notice of termination, giving rise to a wrongful dismissal.  The Court found that in the circumstances, he should have been given 14 months’ notice, or the equivalent of 14 months’ pay.  The real issue in the case, however, was whether or not the Plaintiff had disentitled himself to damages equivalent to 14 months’ pay by virtue of his refusal to accept the transfer. 

The Court pointed out that where an employer offers an employee an opportunity to mitigate his damages by returning to work for the same employer, the issue is whether or not on an objective basis, a reasonable person would accept such an opportunity.  A reasonable person should be expected to accept the replacement job where the salary offered is the same, the working conditions are at least similar, the work is not demeaning, and the personal relationships involved are not acrimonious. 

According to the Supreme Court of Canada judgment quoted in this case, “the critical element is that an employee not be obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation … and it is that factor which must be at the forefront of the inquiry into what is reasonable”. 

Accordingly, the Court will include in its assessment of the situation certain non-tangible elements of the situation including work atmosphere, stigma and loss of dignity in addition to the tangible elements such as salary and job duties. 

The Court concluded that the Plaintiff’s refusal to accept the transfer was not reasonable given that it was the same kind of job with the same salary and that there was no suggestion that the working conditions at Downtown Suzuki were demeaning or that the Plaintiff’s relationships with anyone involved had become difficult or acrimonious.  As a result, the Plaintiff was found to have failed to mitigate his damages.  The income he would have earned during the 14 month notice period was notionally credited to the employer.  This resulted in a finding that the Plaintiff had suffered no damages, and his case was dismissed with costs payable by the Plaintiff to the former employer.

As an interesting side light, it appears that about 2 ½ months after the termination took place (and the lawsuit began), the employer offered the Plaintiff the same position at the Suzuki dealership and confirmed that he would receive the same pay and that his years of seniority would be protected.  The Plaintiff was willing to accept the position at this point but insisted as well that Downtown Toyota guarantee his salary and benefits, addressed the issue of his lost wages and legal costs, and allow him to continue the lawsuit. 

The judge took a dim view of the first two conditions which the Plaintiff attempted to impose on his acceptance of the re-tendered offer.  The Court felt strongly that the Plaintiff should simply have accepted the offer without anything further.  At that point, it could have continued his lawsuit in any event and at least he would have mitigated his damages from that point forward. 

In most cases, terminated employees are surprised and shocked by what has happened to them.  If an offer of alternate employment with the same or related employer is made, the employee may not be in the best position, in terms of his or her stress level and mental state, to assess the situation properly before responding.  Nevertheless, it is incumbent upon anyone in that position to do exactly that.  Failure to make the right call may lead to disastrous results in the ensuing litigation.

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