In Brown v General Electric Canada et al, the Court of King’s Bench of Manitoba (the “Court”) held that an employee was constructively dismissed when the employer company was acquired by a third-party purchaser. However, the Court also found that the employee failed to mitigate his losses after he rejected a job offer from the purchaser for a comparable position.

Background

The employee, an electrical engineer, founded a company that was acquired by the employer, a division of General Electric Canada, via a share purchase in December 2016. As part of the acquisition, the employee entered into an employment relationship with the employer. The employee’s compensation included payment under a Retention Bonus Agreement, conditional on remaining “actively employed” for 60 months from the closing date of the acquisition of his own company. The agreement specified forfeiture of the bonus if the employee voluntarily resigned or was dismissed with cause.

In late 2018, the employee learned of General Electric Canada’s potential sale of the employer, via asset purchase, to a third party. The employee raised concerns that, as a result of the acquisition, he would be involuntarily dismissed and disentitled to the bonus. On February 1, 2019, the employee sought clarification from a senior leader, who promised to escalate his concerns to the executive team.  However, on February 8—before the executive team could respond to the employee’s concerns—the employee received a formal, written offer of from the purchaser on substantially the same terms and conditions as had applied at the employer.

On February 12, an executive assured the employee that the purchaser would honour the Retention Bonus Agreement. This was reiterated to the employee by another executive on February 14. On February 22, the employer offered to have the purchaser amend its written employment offer to explicitly reference the bonus.

The employee was not satisfied with these assurances and informed the employer that, after consulting counsel, he would not pursue an updated offer letter from the purchaser. The employer deemed this a voluntary resignation. The purchaser’s acquisition of the employer closed shortly thereafter.

The employee sued the employer and General Electric Canada for wrongful dismissal, claiming entitlement to a prorated bonus under the Retention Bonus Agreement. The defendants argued that the employee had resigned and, alternatively, that he failed to mitigate his damages by not accepting the purchaser’s offer. The employee countered that his mitigation obligation arose only after his employment ended, and his rejection of the purchaser’s offer predated his dismissal.

Decision

The Court found in favor of the employee on the constructive dismissal issue, ruling that he had been constructively dismissed and was entitled to a prorated bonus up to the dismissal date. However, the Court agreed with the defendants in finding that the employee had failed to mitigate his losses.

Constructive Dismissal

The Court found that the employee was constructively dismissed as a result of the asset purchase. In an asset purchase, the purchaser is a separate and distinct legal entity from the original employer. As a result, employment relationships with the original employer end and workers are rehired by the purchaser under new employment agreements.

In this case, the asset purchase effectively ended the employee’s employment relationship with the employer. Had the employee accepted the offer of employment with the purchaser, he would have been creating a new employment relationship with a separate legal entity. The Court noted that in the absence of the employee’s consent to employment with the purchaser, he was being forced to resign, constituting a constructive dismissal.

Failure to Mitigate

The Court agreed with the defendants that the employee’s rejection of the purchaser’s offer of employment constituted a failure to mitigate his losses. In coming to this conclusion, the Court noted that the purchaser’s offer was nearly identical to the employee’s role at the employer in terms of duties, responsibilities, seniority, salary and benefits. While the employee argued that he had declined the offer because he believed he would be forfeiting the retention bonus, the Court noted that nothing barred the parties from entering into an agreement where the purchaser would assume responsibility for the employer’s obligations under the Retention Bonus Agreement. 

The Court highlighted the employer’s extensive efforts to address the employee’s concerns, including email communications, in-person reassurances, and an offer to amend the purchaser’s offer letter to explicitly reference the bonus. These actions demonstrated the purchaser’s intention to honour the Retention Bonus Agreement.

Although the Court awarded the employee a prorated payment from the Retention Bonus Agreement due to constructive dismissal, the Court found that his failure to mitigate disqualified him from receiving 24 months’ pay in lieu of notice.

Takeaways for Employers

Understanding the nature of a business transaction is critical to determining employer rights and obligations during a sale. In this case, the employer was acquired through an asset purchase, which involves a change in the legal identity of the employer. Employment relationships with the original employer terminate, and new agreements must be established with the purchaser. This process can lead to claims of constructive dismissal if employees do not consent to the transition.

In contrast, in non-unionized settings, a share purchase—where the purchaser acquires the company’s shares and, indirectly, ownership of the business and its assets—does not change the employer’s legal identity, and as a result, employment relationships remain continuous. Any changes to employment terms will require negotiation and new agreements supported by fresh consideration. Without providing such consideration, there remains a risk of constructive dismissal.

However, as this decision demonstrates, even employees who are constructively dismissed have a duty to mitigate their losses. This means employees must act reasonably in considering job offers, including those from the purchaser in an asset sale. To mitigate against such claims, employers in the midst of a sale of its business should ensure that job offers from the purchaser are clearly comparable in terms of duties, responsibilities, salary, benefits, and other terms of employment. A well-documented and reasonable offer can be foundational to an employer’s claim that the employee had failed to mitigate.

Additionally, employers should collaborate with the purchaser to minimize disruption and provide clarity about continuity of terms wherever possible. Open communication is key, and employers should address employee concerns and provide reassurances through clear and timely responses. These proactive measures can help reduce potential disputes and facilitate smoother transitions during a business sale.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.