Canada: Careful About Aiming Too High And Asking For Too Much

After reorganizing a business, employers must take care that the terms of settlement and new employment they offer to their employees do not provide a basis for a dismissed employee to reasonably refuse to take the position in order to mitigate damages for wrongful dismissal.

In Sletmoen v. Nafco Manufacturing Co. Ltd., 2017 BCSC 1726, Jon Sletmoen had worked for Nafco Manufacturing ("Manufacturing") for 18 years as a machine operator. The company then reorganized. Mr. Sletmoen was given more than 10 months of working notice of termination and presented with a proposed "Release and Settlement Agreement" (the "Settlement Agreement") which offered him employment with a newly-incorporated company (the "Employment Offer" and "Machining" respectively). He was also required to agree to a number of terms releasing Manufacturing from various potential liabilities relating to his former employment. The terms also imposed a number of conditions on Mr. Sletmoen. The terms offered by Manufacturing and Machining were rejected.

The defendants' witness acknowledged that the Settlement Agreement included many terms which were "onerous". Notwithstanding this, the defendants submitted that the Settlement Agreement and Employment Offer were reasonable and this was evidenced by the fact that they were accepted by all of their other employees.

The B.C. Supreme Court found the conditions of the Employment Offer with Machining were similar to, but somewhat less favourable than, the terms of Mr. Sletmoen's employment with Manufacturing. Specifically, the new employment did not include group extended health benefits and provided for 2 weeks less vacation.

The Court concluded that the defendants did not establish Mr. Sletmoen acted unreasonably in failing to accept the Settlement Agreement and Employment Offer. The Court identified a number of "onerous" terms, including in particular indemnity provisions and a clause which precluded the plaintiff from seeking and/or accepting any alternative employment with any other employer for a lengthy period of time following cessation of employment. Further, it was reasonable for the plaintiff to take into account the fact that while a proposed letter of reference was "overall" satisfactory to him, it contained some terms which were not.

The Court stated that while "virtually every other employee accepted the terms of the Settlement Agreement and the Employment Offer", the terms were to be considered objectively, from the perspective of an employee in the plaintiff's circumstances. The Court stated:

Whether they appreciated it or not, by offering the Settlement Agreement and the Employment Offer with its onerous terms, the defendants essentially provided the plaintiff with the opportunity to leave ... and insist on being provided with all the benefits to which he was entitled at law, and which would accrue from a reasonable period of notice.

The Court concluded that 16 months was a reasonable period of notice in the circumstances.

Practical Tips

The duty to mitigate is a duty to take all of the steps a reasonable person in the dismissed employee's position would take in his or her own interests. The defendant must prove that the dismissed employee has failed to mitigate damages.

Although it is tempting to try to obtain as many protections as possible in settlement agreements and releases, the terms must not be so onerous as to provide the dismissed employee with a reasonable basis to refuse the offer. Such agreements should reflect reasonable terms necessary to resolve matters between the parties and not overreach beyond what is necessary in the circumstances.

With respect to offers of employment, it is important to remember that whether the former employee has a duty to mitigate by taking the position offered will be judged with reference to what steps a reasonable person in the dismissed employee's position would take in his or her own interests. In this case, the Court noted that this meant also having regard to the particular employee's physical and mental condition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Gabrielle Scorer
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