Court Finds Employee Was Right to Reject Employment Offer in Asset Sale

Introduction

It is established law that terminated employees have a duty to mitigate their damages by accepting offers of comparable employment. While employees have to accept comparable offers of employment, the Ontario Superior Court of Justice found in Giduturi v. LG Electronics Canada Inc., that an employee is not obligated to accept an offer of re-employment at terms that are not comparable to their previous terms of employment. 

After 13 years of employment with LG, the company informed the Plaintiff that they were selling its warehouse operations to a third party, Pantos, and that Pantos would offer him comparable employment. While Pantos offered employment to the Plaintiff, the new terms of employment were not comparable to the previous terms. Pantos offered an “at-will” employment relationship, which allowed Pantos to terminate the Plaintiff at any time and without notice (which is a direct contravention of Ontario employment legislation) and required the Plaintiff to pay for his benefit premiums. The Plaintiff refused to accept these new terms, and Pantos then hired another employee to perform the Plaintiff’s duties, terminating the Plaintiff. The Court awarded the Plaintiff 12 months of reasonable notice after finding that LG wrongfully dismissed the Plaintiff.

Employer Obligations after Corporate Transactions

To understand the Court’s reasoning, some context on obligations owed to employees after the sale of a business is required. When parties are involved in the purchase and sale of businesses, there are significant considerations within the context of the business’s employees. The type of sale has a significant impact on the obligations that a company owes to its employees. When the transaction is a share purchase, the purchaser inherits the vendor’s employees, and all existing employment relationships continue. The purchaser does not automatically assume the vendor’s employees when the transaction is an asset sale. A purchaser in an asset transaction can offer employment to all, some, or none of the vendor’s employees. If a purchaser does not offer the vendor’s employees employment, they are terminated as of the transaction’s closing date.

The Court’s Reasoning

While employees have an obligation to mitigate their damages by accepting offers of comparable employment, the Court stated that the Plaintiff’s failure to accept the new offer was not a failure to mitigate, as the offer was not comparable. The Court also noted that the Plaintiff could not mitigate his damages because the position was offered to and accepted by another employee. The Plaintiff could not mitigate his damages by reconsidering and accepting the offer. Therefore, the Court found that LG wrongfully dismissed the Plaintiff and was required to provide him with 12 months of his former salary in lieu of notice.

Takeaway for Employers

When purchasers are engaged in asset sales, they must take the utmost caution in dealing with employees. Any offers of re-employment made to the vendor’s employees should be substantially similar – if not identical – to their previous terms of employment. Failing to do so can open the parties to significant liability for wrongful dismissal damages.

The parties to an asset sale should also negotiate into the asset purchase agreement which party will be responsible for providing the terminated employees with their statutory termination and, if applicable, their common law reasonable notice. Exercising foresight during the transaction can prevent future headaches down the road.

Written by: Jordan Cantor and Jonathan Borrelli