Case In Point
Appellate Court Considers Sale of Business and Duty to Mitigate
Date: June 11, 2019
In Dussault v Imperial Oil Limited, the Ontario Court of Appeal found that two employees did not fail to mitigate their damages when they refused offers of employment from the purchaser of a former employer, as the employment that was offered was not “comparable.”
Background
In 2016, Imperial Oil sold its retail business to Mac’s Convenience. At the time, one of the two plaintiffs was 63 years old and had over 39 years of service with Imperial. The other plaintiff was 57 years old and had 36 years of service. Both plaintiffs held management positions with significant responsibilities.
During their employment, the plaintiffs participated in Imperial’s Savings Plan to which Imperial made an annual contribution of 6% of the plaintiffs’ salaries. The plaintiffs participated in a version of the plan in which they could split their contributions between the Savings Plan and a Retirement Income Option. This meant that Imperial contributed 3% each to the Savings Plan and Retirement Income Option.
The plaintiffs received offers of employment from Mac’s that had terms generally less favourable than their employment with Imperial. In particular, the offers stated that their salaries would be reduced after a period of 18 months, and their prior service with Imperial would not be recognized. The plaintiffs rejected these offers and brought a wrongful dismissal action against Imperial.
On summary judgment, the Ontario Superior Court found in favour of the plaintiffs and rejected Imperial’s argument that the plaintiffs failed to mitigate when they did not accept Mac’s offers. Notably, the motion judge found that it was not reasonable to require the plaintiffs to accept offers that did not recognize prior service and that there the significant differences in Mac’s offers made the rejection of the offers reasonable.
The motion judge awarded the plaintiffs 26 months’ notice each as well as 3% of Imperial’s annual contribution to a Savings Plan through the notice period.
At the Court of Appeal
Before the Court of Appeal, Imperial argued that the motion judge erred in failing to find that the employees had not mitigated their damages by accepting comparable employment with Mac’s.
The Court rejected that argument. It agreed with the decision of the motion judge that the employment offered by Mac’s was not comparable and that it would have resulted in an immediate, substantial decrease in the plaintiffs’ benefits, as well as a material drop in their base salaries. Further, the Court found there was no reason to depart from the well-established principle that “comparable employment” does not mean “any employment,” and requires an offer with comparable status, hours, and pay.
The Court also allowed the plaintiffs’ cross-appeal that they were entitled to damages of 6% rather than 3%, representing their annual contributions to their Savings Plans.
During the period following the termination of their employment (but during the employees’ 26-month notice period), Imperial had made changes to the Savings Plan that would decrease its percentage contribution for employees who elected to participate in the Retirement Income Option. The motion judge determined that, given the termination of employment, the plaintiffs did not have the opportunity to opt-out of the Retirement Income Option and were accordingly entitled to 3% throughout the notice period.
The Court of Appeal found that the amendments clearly provided that if an employee opted out of the Retirement Income Option, the employees’ contribution would have been 6% of their earnings. It noted the plaintiffs’ argument that a reasonable person would have opted out of the Retirement Income Option to maximize their Savings Plan and found that the plaintiffs should have been awarded damages in the amount of 6%, representing lost Saving Plan benefits for the period of reasonable notice.
Key Takeaways
The Court of Appeal highlights the potential liability that can flow from the sale of a business and the decision is a reminder that employers must consider whether the offers of employment upon purchase of a business are comparable to the employees’ previous status, pay, and benefits. It also highlights the importance of including terms in employment agreements that unambiguously set out the entitlements upon termination of employment. With respect to the employees’ benefits, the case confirms that employee benefit entitlements during the notice period must reflect what the employees would have normally received had they remained employed.
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