If a fired employee refuses a re-employment offer, is that a failure to mitigate?

Q: If a terminated employee refuses an offer to be rehired, is that a failure to mitigate?

A: As we move from a pandemic to a post-pandemic economy, Canadian employers will continue to recall employees back to employment as they attempt to ramp up to normal operations. But some employees are choosing not to accept a recall and instead sue for wrongful dismissal. This begs the question of the legal impact of an employee’s decision to refuse a recall to employment or, after being terminated, refusal of an offer to be re-hired either permanently or for a period of notice.

A claim for wrongful dismissal is a legal action by an employee for damages arising from a termination of employment, which is usually referred to as the period of “reasonable notice.” The reasonable notice period is how long a court thinks it will take the employee to find comparable employment, taking into account numerous factors.

Obligation to mitigate

An important piece of the wrongful dismissal puzzle is that damages are always subject to an employee’s obligation to “mitigate” their losses incurred during the reasonable notice period stemming from the termination of their employment. The common law principle of mitigation holds that an employee has a legal duty to make reasonable attempts to find a job and minimize any losses or damages suffered from their termination. While a failure to do so won’t change the length of the reasonable notice period, it will provide an employer with the opportunity to argue that there ought to be a reduction in the amount of damages.

Case law states that while the obligation is on the employee to mitigate, it is up to the employer to demonstrate that the employee did not mitigate. This is a difficult task for an employer and requires them to prove two things — that the employee’s efforts to mitigate were unreasonable and that had the employee acted reasonably, they would have secured comparable employment.

Employees with termination clauses in their contracts aren’t required to mitigate unless the clause specifically says so, according to an employment lawyer.

The Supreme Court of Canada has provided us with the test and general analytical framework for mitigation, in the case of Evans v. Teamsters, Local 31, 2008 SCC 20. The court held that where an employer offers an employee a chance to mitigate damages by returning to work, the central issue is whether a reasonable person would accept the offer.

This objective assessment involves a careful consideration of a variety of tangible and intangible factors including: the terms of employment (salary, working conditions, duties) and whether they were functionally similar or comparable to those prior; the status of personal relationships involved and whether they are acrimonious or have deteriorated; and “non-exhaustive factors” which may be relevant in determining if a reasonable person would accept such an opportunity.

It is a contextual analysis which is often fact specific. There may, however, be significant distinctions depending on the nature of the offer of re-hire or recall. In a situation where an employer has laid off an employee and is recalling them back to work, it may be more difficult for an employee to argue that the return to work would lead to the application of the Evans factors.

Ontario dismissal

In the Ontario case of Gent v. Strone Inc., 2019 ONSC 155, David Gent claimed that he was constructively dismissed by a layoff. His employer, Strone, denied that Gent was wrongfully dismissed but if the court found that he was, he had failed to mitigate his damages by refusing a recall offer.

Gent was advised at the time of layoff that he would likely be recalled as soon as was economically feasible. Strone submitted that Gent was eventually recalled to the same position and on the same terms and conditions as prior to his layoff. The parties agreed that the applicable test and factors, as in Evans, centered around the question of “whether a reasonably objective individual in his circumstances would not have concluded that returning to work would be too embarrassing, humiliating, and/or degrading.”

The evidence showed that in addition to the assurances from Strone, Gent was recalled to the position held prior to his layoff on substantially the same terms and conditions of employment. Gent testified that, despite his alleged lack of knowledge of the terms of his recall, he believed it was business as usual.

Gent failed to provide any evidence as to why he would be humiliated, embarrassed or degraded and the evidence showed that he had no intention of accepting an offer from the company under any circumstances and was insistent on proceeding with litigation. In addition, there was ample evidence that demonstrated a close and good working relationship. The court did not accept that there was a total breakdown of the employment relationship.

Ultimately, while the court agreed that Gent was constructively dismissed, it held that Gent’s refusal to consider Strone’s offer was a failure to mitigate. He was, therefore, only entitled to damages from the date of his termination to the date that he could have rejoined Strone (three and a half weeks). In other words, he had failed to mitigate his damages and paid for it.

The concept of mitigation

In short, a party must be careful in applying the concept of mitigation. On the one hand, a court will likely reject a mitigation argument on a recall where the return to work is in an environment of hostility, embarrassment or humiliation, or to a different or incompatible position. Other factors may include the history and nature of employment, whether litigation been commenced by the employee, and whether the offer was made while the employee was still working for the employer.

Employers should approach a re-employment offer with care, specifically addressing the terms and conditions of the offer along with any factors which may have been in place prior to the layoff or termination.

On the other hand, employees must be aware that simply refusing an offer of re-employment may warrant a significant reduction in damages. Courts will not react well to a request for a “windfall” of compensation where the employee cannot demonstrate that their rejection of the offer was objectively reasonable.

A terminated employee who is older may have a reduced duty to mitigate, says an employment lawyer.

Lorenzo Lisi is a partner and leader of the Workplace Law Group at Aird & Berlis in Toronto.