Does the duty to mitigate apply to all dismissed employees?

While the application of common law reasonable notice remains central to the determination of damages in wrongful termination cases, written employment agreements, with termination clauses fixing notice entitlement in the event of termination, are becoming more common.

Employers, no doubt, resort to written agreements with the aim of limiting their exposure to damages upon an employee’s without cause termination.  Such written contracts may be attractive to the employer as they create a degree of certainty and predictability in terms of the employer’s liability in the event the employer ends the employment relationship.  However, unless carefully drafted, a written agreement might not necessarily limit an employer’s exposure to the extent desired.

For example, in Bowes v. Goss Power Products Ltd., 2012 ONCA 425 (CanLII),  the Ontario Court of Appeal recently considered the issue of an employee’s duty to mitigate in the face of a written employment agreement where the parties had agreed to fix the amount of notice payable upon termination.

Mr. Bowes worked for Goss Power for just over 42 months.  There was a written employment agreement, prepared by Goss Power.  The employee’s entitlement upon termination, without cause, was set out at paragraph 30(c) which provides that:

30. The Employee’s employment may be terminated in the following manner and in the following circumstances:

(c) By the Employer at any time without cause by providing the Employee with the following period of notice, or pay in lieu thereof:

Six (6) months if the Employee’s employment is terminated prior to the completion of forty-eight (48) months of service;

Following his dismissal, and in accordance with paragraph 30(c), Goss Power initially confirmed that Mr. Bowes would be paid his salary for a period of six months.  The employer also advised Mr. Bowes that he had a duty to seek alternate employment during the notice period, and to keep Goss Power updated on his mitigation efforts.  However, the employment agreement itself made no reference to mitigation.

About 12 days after his termination, Mr. Bowes found a new job paying him a salary equivalent to that which he was being paid at Goss Power.  Goss Power then ceased further payments on the basis that the employee had fully mitigated his losses.

The employee commenced an application under rule 14.5 of the Rules of Civil Procedures, R.R.O, 1990, Reg. 194, seeking a determination of his rights under his employment contract.  In support of his application, Mr. Bowes argued that, given that the notice period was fixed by terms of the contract, there was no accompanying duty to mitigate.  He argued, therefore, that he should be entitled to the full 6 months’ pay in lieu of notice, despite having found replacement employment.

However, the lower court agreed with the employer in finding that the Mr. Bowes was not entitled to any further payments, as he had fully mitigated his damages with his new employment.  The court found that this was consistent with the case law, and that absent an agreement to the contrary, a dismissed employee has a duty to mitigate.

In setting aside the lower court’s decision, the Court of Appeal states at paragraph 34 that:

An employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.

The Court of Appeal points out that it was an error to consider employment contracts with fixed notice periods as being akin to damages in lieu of notice at common law.  According to the Court, the correct approach is that the fixed notice should be regarded as liquidated damages or a contractual sum, which is not subject to mitigation.  The Court also rejected the lower court’s view that a duty to mitigate applies unless the contract provides otherwise.  Instead, the Court of Appeal holds that where the employment agreement is silent on mitigation, the common law duty to mitigate will not be applicable.

Brown Litigation regularly advises and assists both employers and employees with respect to contracts of employment, and has traditionally recommended that the contracting parties specifically stipulate if any notice period is subject to mitigation or setoff.  The Court of Appeal has now confirmed the importance of proper planning and contract review.

Posted by D. Jared Brown – Lead Counsel

Fired? Get a Job!

If you have been dismissed from your job, there is a duty in contract law which states that you have an obligation to mitigate your damages.  This doctrine means that a dismissed employee must take steps to minimize the losses they suffered as a result of losing their job.  Basically, this means that you need to take steps to look for another job.

The leading case on the duty to mitigate is the Supreme Court of Canada decision of Red Deer College v. Michaels.  In this case, the Supreme Court explained the duty to mitigate as follows:

The primary rule in breach of contract cases, that a wronged plaintiff is entitled to be put in as good a position as he would have been in if there had been proper performance by the defendant, is subject to the qualification that the defendant cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the plaintiff.  There reference in the case law to a “duty” to mitigate should be understood in this sense.

The Court held that the burden is on the defendant to provide proof that the plaintiff failed to mitigate her/her damages:

It seems to be the generally accepted rule that the burden of proof is upon the defendant to show that the plaintiff either found, or, by the exercise of proper industry in the search, could have procured other employment of an approximately similar kind reasonably adapted to his abilities, and that in absence of such proof the plaintiff is entitled to recover the salary fixed by contract.

The Court went on to emphasize that the onus on the employer is heavy, citing a previous decision, because “the burden which lies on the defendant of proving that the plaintiff has failed in his duty of mitigation is by no means a light one, for this is a case where a party already in breach of a contract demands positive action from one who is often innocent of blame.”

Despite the burden being on the defendant to show that efforts were made, plaintiffs have been criticized by the courts for not making enough of an effort. In Chambers v. Axia Netmedia Corp., it was held:

Clearly, the efforts of Mr. Chambers [the plaintiff] were to a large extent confined to reading the local newspaper and forwarding his resume to employers. Although commendable, I am satisfied, by restricting his search to this one vehicle, the effort was too limited. Although there is no evidence as to whether these other efforts would necessarily have produced a positive result, earlier than he was able to find the employment he did, I am satisfied there was, to some extent at least, a failure to take all reasonable steps to mitigate

There are simple steps that a plaintiff can take to demonstrate that they attempted to mitigate their damages in an attempt to avoid an adverse decision like the one in Chambers.  We counsel our clients to keep a running log or mitigation journal outlining all the key events, dates, and information related to their job search post-termination including identifying job search efforts, networking, applications, and other career building steps.  This is typically done in the form of a diary or a calendar.  Second, retain copies of the letters, emails, or any other correspondence you sent in an attempt to secure a position.  Third, diversify your search.  You don’t need to limit to just one means.  You could add yourself to the social networking site LinkedIn, search on websites such as Workopolis, scan the newspapers and attend local networking events in your city.  Further, Human Resources Development Canada (“HRDC”) offers a range of free networking, job search, and outplacement services for qualifying dismissed individuals.  All of these steps will assist you in demonstrating that a genuine effort was made to secure new employment.

Posted by D. Jared Brown – Lead Counsel