Termination of an employment contract can pose various challenges and issues. For employees, feelings of uncertainty and apprehension about their professional and financial future are often common concerns. Meanwhile, employers must remain compliant with their legal obligations throughout the termination process.

One critical issue that arises after termination is the employee’s responsibility to mitigate their losses. Mitigating losses often involves actively seeking new employment opportunities and taking reasonable steps to minimize the financial impact of job loss. By proactively engaging in these efforts, employees can enhance their prospects for re-employment and mitigate the adverse effects of their job loss. So, at what point is the duty to mitigate triggered?

An Employee’s Responsibility to Mitigate Following a Termination

Mitigation is a legal concept that is used in the context of a termination. When an employee has been terminated for any reason, they have a legal duty to act reasonably, including making efforts to secure alternative employment to mitigate (or reduce) the economic loss they experience due to the termination.

Mitigation can arise in cases of wrongful dismissal and constructive dismissal. While the law aims to compensate the terminated employee for their economic losses during a reasonable notice period, it will only do so to the extent that the employee actually sustained economic loss. However, navigating what does, or does not, constitute mitigation can be difficult to understand.

Is a Terminated Employee Required to Accept an Employer’s Offer of Re-Employment?

In a recent decision from the Ontario Superior Court of Justice, the Court was asked to determine whether a 49-year-old warehouse worker, who the employer had employed for over 13 years, had failed to mitigate his losses by refusing to accept an offer of re-employment by an acquiring company.

Employment Contract Terminated After 13 Years

In the matter of Giduturi v. LG Electronics Canada Inc., the plaintiff employee (the “employee”) commenced a lawsuit for wrongful dismissal following his termination from the defendant employer (the “employer”) after just over 13 years of employment. The employee had been hired as a packer in the employer’s warehouse in 2006 and was eventually promoted to team lead. At the time of the termination, the employee was 49 years old and was earning an annual income of $44,250.48.

Under the parties’ employment contract, the employee was entitled to group medical benefits, six days per year of paid sick leave, and a 5% bonus based on individual and company performance. Before the termination, the employee’s performance reviews had been positive and no performance issues were noted.

Employer Announces Intention to Outsource Warehouse to Third-Party

The employer had stated its intention to outsource its warehouse operations to a third-party company (the “third-party”) in a meeting on January 4, 2021. The general understanding was that the affected warehouse employees would be “offered equivalent terms of employment” with the third party, and their seniority would carry over. The employee also testified that he was told that his job duties and compensation would remain the same.

On January 11, 2021, the third party sent the employee a written job offer for the role of warehouse team lead. However, the offer was “not a contract for any specific time of employment.” Instead, it was proposed as an “at-will employment relationship” and asked the employee to provide his answer by February 5, 2021. The proposed offer also significantly reduced the employee’s total compensation, including monthly out-of-pocket expenses for family plan benefits and no paid sick days.

After raising these concerns, the third party “adjusted their offer to increase the base salary to account for the lost paid sick days and for a delay in the merit increase the plaintiff would have been due” with the employer.

Employee Declines Third-Party’s Offer; Obtains “Inferior” Employment

Around February 10, 2021, the employee declined the third party’s offer and stated that he wanted assurances from the employer that the third party was a “good company that would give him the same situation and security he had enjoyed with them.” Further, he hoped to continue with the employer in another job rather than accepting the third party’s offer. Once this decision was communicated, the third party quickly hired a replacement.

On March 12, 2021, the employee received a formal termination letter from the employer terminating his benefits and noting that he would be paid severance in the amount of $11,420.03. The employee struggled to find comparable employment but eventually found a similar job at a warehouse and started a six-month employment contract on May 10, 2022. Although the job had no benefits and was inferior to his previous role with the employer, he had been unable to secure anything better, despite extensive efforts. The employee noted that his “Indian educational credentials are of little value in his job search without relevant Canadian experience.”

Court Finds Duty to Mitigate Not Engaged by Offer From Third-Party

When the matter came before the Court, the primary point of contention between the parties was whether the employee’s rejection of the third-party offer constituted a failure to mitigate his damages by refusing an offer of comparable employment. However, the Court accepted the employee’s position that “the duty to mitigate was not engaged by this offer because it was made and withdrawn before the… actual termination.” Further, in this case, the employee received and rejected the offer on “materially different terms before his termination” and by the time the termination occurred, the position was filled and the employee was “not able to mitigate his damages by reconsidering and accepting it.”

The Court accepted the reasoning in the case of Dussault v. Imperial Oil Limited, which was similar to the case at hand. In this case, the plaintiff received and rejected an offer to continue employment on materially different terms prior to his termination. By the time the termination occurred, the plaintiff was not able to mitigate his damages by reconsidering the offer and accepting it. As a result, the Court held that:

“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.”

Employee Awarded 12 Months of Notice

In this case, the Court noted that the employee claimed that a reasonable notice period of 14 months was appropriate, while the employer argued that only 9 months was warranted, with the period between January 9 and March 12, 2021, to be deducted as working notice. However, in this case, the Court accepted that the plaintiff made “extensive efforts to find comparable work with limited success” and noted that a “greater period of notice is warranted than was awarded in the cases relied on by the defendant.” The Court also noted that other courts “should not assume that higher-ranking managerial employees will always struggle more to find comparable employment.”

Ultimately, the Court in this case held that the employee was entitled to a reasonable notice period of 12 months of notice, less the amount already paid to him upon his termination.

Contact the Toronto Employment Lawyers at Grosman Gale Fletcher Hopkins LLP for Practical Advice on Mitigation Obligations

When an employment agreement is terminated, whether with or without cause, an employee must take reasonable steps to mitigate their economic losses. Therefore, consulting with an employment lawyer is important to ensure you understand what may or may not satisfy such mitigation requirements. The trusted labour and employment lawyers at Grosman Gale Fletcher Hopkins LLP in Toronto help employees navigate these uncertainties with ease and ensure their interests remain protected. To speak with one of our employment law team members about your options following a wrongful termination, contact us by phone at 416.364.9599 or reach out to us online to schedule a confidential consultation.