It’s natural to want a clean break and a fresh start after the end of an employment relationship. In most cases, employees can find new opportunities without looking back. However, as the decision in Brown v. General Electric Canada et al., 2024 MBKB 95 (“Brown”) reminds us, sometimes employees have to essentially get back together with an employer they thought they could leave behind.
On Mitigation and the Nature of the Transaction
Generally, the duty to mitigate requires employees to make reasonable efforts to find comparable employment, which usually entails looking for a new job. In some circumstances, though, mitigation can be a little trickier and require an employee to accept employment with the very employer they thought had “dumped” them. These situations often include scenarios of constructive dismissal, or, as in Brown, the sale of a business. In the context of the sale of a business, an employee’s duty to mitigate might require them to accept the same job with the purchaser, even though the vendor-employer technically triggered a termination.
In these situations, the key is to understand the nature of the transaction. When the purchaser acquires the business by purchasing its shares, the employee’s employment continues unaffected. This is because legally, the employer has not changed. When the business is acquired via an asset purchase, the legal identity of the employer changes, so that technically, the employment relationship terminates. In asset purchase transactions, the vendor is liable for severance. The purchaser is not obligated to offer the vendor’s employees employment, though it has the option to do so, particularly if it wants to retain key employees. However, that can change depending on how things play out.
The Decision in Brown
Brown was an electrical engineer, who coincidentally founded his own company, which General Electric (“GE”) purchased via a share purchase in 2016. Pursuant to the purchase, he became an employee of GE Transportation, a division of GE. In late 2018, Brown realized that GE and Wabtec were in serious talks for Wabtec to purchase GE Transportation. Wabtec would purchase GE Transportation’s assets in February 2019.
Wabtec wanted to keep Brown, a talented employee. On February 8, it offered him employment in the same role, under substantially similar terms; he declined the offer on February 22 and took the position that his employment had been terminated. The deal closed just days later, on February 25. Subsequently, Brown sued GE for wrongful dismissal; GE took the position that he resigned and the alternative position that he failed to mitigate, while Brown took the position that he did not fail to mitigate because he declined Wabtec’s offer prior to the termination of his employment. Since the offer was not revived after closing, he argued it was not unreasonable of him to not work for Wabtec.
The Court found that Brown was dismissed by GE, since a contract of employment cannot be assigned without the employee’s consent. By operation of law, the contract was terminated by the sale, so Brown did not resign by rejecting Wabtec’s offer. Nonetheless, the Court found that Brown acted unreasonably in rejecting the offer, which was for practically the same job.
Brown reasoned that it was reasonable to reject the offer because he believed it would interfere with his eligibility to earn a substantial bonus with GE. By accepting the offer, he thought he would no longer be actively employed. The Court found that the offer addressed this concern by having Wabtec take on GE’s bonus obligations to Brown. Wabtec assured Brown that it would assume all of GE’s liabilities to him, including the bonus arrangements. Further discussions led to Wabtec amending the offer letter to explicitly provide assurance for all items Brown listed as concerns. Brown also objected to the offer on the grounds of it clashing with a restrictive covenant; on this point, the Court held that his concern was unfounded, as GE would not have considered accepting the offer an actionable breach.
Finally, the Court rejected Brown’s argument that the duty to mitigate was only triggered after the sale, noting that he put too much emphasis on the timing. Mitigation requires one to take steps a reasonable person would take. As such, knowing that he was out of work, and knowing that Wabtec wanted to keep him on board, he should have contacted them and asked if the offer was still on the table. In failing to do so, he was found to have acted unreasonably and failed to mitigate his damages.
Constructive Dismissal: A Sneak Peek
As mentioned above, constructive dismissal is another situation where employees might need to stay with the employer they thought had dumped them in order to avoid a failure to mitigate. In the context of a constructive dismissal claim, the reasonable thing to do could well be to remain on the job even after claiming that there has been a dismissal.
There are good reasons for this. For example: leaving could be construed as a resignation, leaving an employee with no entitlements. Alternatively, in the absence of legitimate reasons not to stay, such as harassment or a poisoned work environment, leaving could be seen as a failure to mitigate and result in a reduction to an eventual award of damages. Notably, even if staying is the reasonable call, the income received would need to be accounted for when assessing wrongful dismissal damages; employees don’t get to “double-dip”. Such considerations make constructive dismissal challenging to navigate. I will cover this topic in greater detail on my next blog.
Pith and Substance
As Brown shows, sometimes employees can’t simply leave their old job behind. Doing so risks a finding that they failed to mitigate, which can dramatically reduce their entitlement to pay in lieu of notice. As enticing as a new beginning can be, we recommend contacting an employment lawyer before taking any steps that could harm your interests.
If you’re an employee, and you’re in a situation where you are dealing with constructive dismissal, or your employer is being sold, we can advise you as to how to approach the situation strategically. As we saw, simply walking away from the job can have serious consequences, even if there was technically a termination.
If you’re an employer, we can assist you with wrongful dismissal claims that arise in the context of constructive dismissal, or in the sale and purchase of a business. We can advise you on how to approach the matter in a way that minimizes your liability and exposure.
