Six Minutes Employment Lawyer 2016
Author: Lai-King Hum[1] May 4, 2016

Included in almost every defence to a wrongful dismissal claim is a failure on the part of a dismissed employee to mitigate the loss of his or her employment. This obligation to mitigate usually refers to the obligation of employees who lose their job to take reasonable steps to find and accept other comparable work where available. If an employee fails to take reasonable steps, then a court may reduce the damages (or the reasonable notice period) that might otherwise be applicable.

Some people have explained this obligation as the duty of the dismissed employee to now act in the employer’s interest. However, this legal rule is not about a duty owed to the employer, but about the employee taking steps to act in his or her own interest, as measured by the standard of the reasonable person in a similar circumstances. The employer’s common law duty to provide reasonable notice of termination of employment is linked to but independent of the employee’s duty to mitigate the loss of employment and minimize the damages suffered.

The concept of mitigation in the employment law context, explained below, seems simple enough at first blush. However, how the duty of mitigation has been applied in different recent cases shows nuances that are not well understood. Counsel acting for both employers and employees would be wise to consider some of the more nuanced issues, which are raised here.

THE CONCEPT OF MITIGATION

[or, as Billie Holiday might say, “Do Your Duty”]

Mitigation is well understood as a general principle of common law contracts. In writing for the majority of the Supreme Court of Canada, Chief Justice Laskin succinctly described the general duty to mitigate in Michaels v. Red Deer College, [1976] 2 S.C.R. 324[2], at p. 330 [Red Deer College]:

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. The reference in the case law to a “duty” to mitigate should be understood in this sense.

In the context of employment law, the concept of mitigation seems rather counter-intuitive: after being terminated from employment, does the dismissed employee now have the obligation to mitigate the employer’s contractual breach of the employment relationship? Most employees are surprised to learn of this obligation to mitigate, and the corresponding potential clawback of their termination pay package, seeing this as an additional affront to their dismissal by their employer.

The Court of Appeal in Forshaw v. Aluminex Extrusions Ltd., 1989 CanLII 234 (BCCA), at p. 6, sought to clarify this duty to mitigate in an employment law context:

That “duty” – to take reasonable steps to obtain equivalent employment elsewhere and to accept such employment if available – is not an obligation owed by the dismissed employee to the former employer to act in the employer’s interests. It would indeed be strange that such a duty would arise where an employer has breached his contractual obligation to his employee, having in mind that no duty to seek other employment lies on an employee who receives proper notice.

The duty to “act reasonable”, in seeking and accepting alternate employment, cannot be a duty to take such steps as will reduce the claim against the defaulting former employer, but must be a duty to take such steps as a reasonable person in the dismissed employee’s position would take in his own interests – to maintain his income and his position in his industry, trade or profession. The question whether or not the employee has acted reasonably must be judged in relation to his own position, and not in relation to that of the employer who has wrongfully dismissed him…

Finally, the duty to mitigate applies to the common law duty of the employer to provide reasonable notice of the termination of employment. Payments and other entitlements owed to an employee under employment standards legislation must be provided, even if the dismissed employee starts working at another job the very next day. [3]

WHO BEARS THE ONUS OF PROOF?

[or, as Aretha Franklin might say, “Prove It!”]

Ordinarily, the plaintiff bears the burden of proving their case in court. One might think therefore that the plaintiff must prove that they have taken reasonable steps to mitigate the loss of employment.

In Red Deer College, the Supreme Court of Canada addressed the issue of who bears the onus of proof in a mitigation defence. Red Deer College was a wrongful dismissal action brought by two dismissed members of the academic staff of Red Deer College in Alberta. The appeal to the Supreme Court of Canada was on one issue only: whether or not the Alberta Court of Appeal erred in its reasoning that the plaintiffs did not bear the onus of proof relating to the duty to mitigate.

Chief Justice Laskin adopted a passage from the text Williston on Contracts, vol. 11, 3rd ed. (1968) at page 325:

In the ordinary course of litigation respecting wrongful dismissal, a plaintiff, in offering proof of damages, would lead evidence respecting the loss he claims to have suffered by reason of the dismissal. He may have obtained other employment at a lesser or greater remuneration than before and this fact would have a bearing on his damages. He may not have obtained other employment, and the question whether he has stood idly or unreasonably by, or has tried without success to obtain other employment would be part of the case on damages. If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, it is for the defendant to carry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial judge’s assessment of the plaintiff’s evidence on avoidable consequences.

The duty to mitigate is therefore an issue raised by the defence. As such, in order for a mitigation defence to succeed, the employer bears the onus of establishing that the former employee has “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” [Red Deer College, p. 332].

In Somir v. Kohler Canada Co., 2006 CanLII 42369 (ONSC), the Court found that the employer had failed to satisfy the onus of proof in its mitigation defence. The employer had argued that the plaintiff’s search for comparable employment had diminished a year following his termination, that the plaintiff had failed to consult former employees who could have provided leads to potential employment, and also that the plaintiff failed to accept two offers from companies in the kitchen cabinet industry. The Court disagreed with the employer and found that there was ample evidence to support the plaintiff’s active search for comparable employment, despite reduced documentary evidence a year following his termination. The Court also dismissed and found the employer’s argument that the plaintiff ought to have consulted with former employees for available employment highly speculative. Finally, the Court concluded that “there was no requirement on the plaintiff to accept the positions offered by two kitchen cabinet companies” as “[b]oth positions were at substantially lower wage rates, neither was a supervisory position” similar to the plaintiff’s previous employment, and that “each was temporary” [para 62].

ALTERNATE EMPLOYMENT WITH DISMISSING EMPLOYER

[or, as the Clash might ask “Should I stay or should I go?”]

Employees are often faced with the difficult decision of whether or not they should accept alternative employment with the same employer.

An employee is entitled to refuse to continue working with the same employer where to do so would subject the employee to humiliation and embarrassment. For instance, in Farwell v. Citair, Inc. (General Coach Canada), 2014 ONCA 177 (CanLII) [Farwell], the Court of Appeal dismissed the employer’s appeal of lower court decision, which had awarded the dismissed employee damages in lieu of notice of 24 months. The plaintiff was 58 years old, and had worked for 38 years for this company, with his last position as VP Operations. During an economic downturn, the company decided to give the VP Operations position to someone else, and told the plaintiff that he would henceforth take the Purchasing Manager position, a position that he had held several years prior. He refused to take this step backwards. Unwisely, the company announced to other employees the change in the VP Operations role, and made no announcement about the plaintiff’s future within the company.

The employer’s argument was focused on the plaintiff’s failure to adequately mitigate his damages, since he had refused to accept the employer’s offer of the Purchasing Manager position (one which the employee had occupied years prior) to work out the notice period. In arriving at his decision, Justice Lauwers cited the following passage from the Supreme Court of Canada decision, Evans v. Teamsters Local Union No. 31, [2008] 1 S.C.R. 661, at para. 12:

This Court has held that the employer bears the onus of demonstrating both that an employee has failed to make reasonable efforts to find work and that work could have been found (Red Deer College v. Michaels, 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324). Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so “[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious” (Mifsud v. MacMillan Bathurst Inc. (1989), 1989 CanLII 260 (ON CA), 70 O.R. (2d) 701, at p. 710).

[Emphasis added]

Justice Lauwers agreed with the trial judge in that “an employee cannot be obligated to mitigate by working in an atmosphere of hostility, embarrassment, or humiliation” [para. 13], and therefore it was not unreasonable for the plaintiff to have refused the lesser position.

However, in both of Bolibruck v. Niagara Health System, 2015 ONSC 1595 (CanLII) [Bolibruck] and Ghanny v. 498326 Ontario Limited, 2012 ONSC 3276 (CanLII) [Ghanny], the court dismissed the plaintiff’s action in finding that each had unreasonably turned down the employer’s offer of re-employment, or in Ghanny, a replacement offer at a related company. Both courts found that there were no atmospheres of hostility or embarrassment, and their new roles would have similar or identical salary and benefits. As “the reasonableness of an employee’s decision not to mitigate is assessed on an objective standards”, both plaintiffs’ actions to decline reemployment were viewed as unreasonable [Bolibruck at paras. 96 – 101; Ghanny at para. 12].

FIXED NOTICE OR SEVERANCE PROVISIONS

[or, as Ryan Adams says, “Fix It”]

How does the duty of mitigation apply when dealing with fixed notice or severance provisions, as opposed to common law reasonable notice? The simple answer is that it does not, with exceptions. Fixed notice or severance clauses are used as a means of predetermining what the severance obligations are upon termination, but employers need to beware that they are not subject to a duty to mitigate unless there is an express clause that provides for it.

Until relatively recently, the prevailing understanding, based on the somewhat convoluted reasoning in Graham v. Marleau, Lemire Securities Inc., 2000 CanLII 22616 (ON SC) [Graham], was that the duty to mitigate generally applied, whether in the context of indefinite or fixed term employment, with or without a notice or severance clause, unless there was an express provision waiving the duty to mitigate. [4]
However, since 2012, the leading case on the duty to mitigate the loss of employment has been Bowes v. Goss Power Products Ltd., 2012 ONCA 425 (CanLII) [Bowes]. The Court of Appeal considered whether an employment agreement with a fixed notice or severance clause, and no express waiver of mitigation, is subject to the duty to mitigate, and found that a contractually fixed term of notice is distinguishable from common law reasonable notice.

Then Chief Justice Winkler, writing for the Court of Appeal, referenced Justice Nordheimer’s earlier decision in Graham, and the error of treating a contractually fixed term of notice as effectively indistinguishable from common law reasonable notice. He concluded that the parties, by providing for a fixed notice provision, did not intend mitigation to apply:

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.

Counsel for employers are advised to ensure there is an express duty of mitigation if the aim is to minimize payout if the dismissed employee re-employs.[5]

FIXED TERM CONTRACTS SILENT ON MITIGATION

[remember Simon & Garfunkel’s “The sound of silence”?]

Employers utilize fixed term contracts at their peril, unless the contract contains a well-written early termination clause. Otherwise, employers who early terminate a fixed term contract may find themselves liable for paying the balance of the contract to the dismissed employee.

More significantly, while Bowes, discussed above, held that the duty to mitigate does not apply in the context of fixed notice ­termination provisions, a very recent Court of Appeal case determined that the duty to mitigate also does not apply in the case of fixed term contracts that are silent on the issue of mitigation.

In April 2016, the Ontario Court of Appeal released its decision in Howard v. Benson Group Inc. (The Benson Group Inc.), 2016 ONCA 256 (CanLII), which considered the issue of mitigation when a fixed term contract is early terminated. The case involved an employee hired on a five-year contract starting in September 2012. Twenty-three months into the contract (with just over 3 years remaining in the term), the employer terminated his employment, without cause. Although the employee was successful in his motion for summary judgment, the judge only awarded him common law damages for wrongful dismissal, with the quantum of damages to be assessed at a further mini trial. On appeal, the question was whether an employee employed under a fixed term employment contract without a clause providing for early termination without cause, is entitled to payment of the balance of the contract on early termination of the contract.

Justice Miller, for the Court of Appeal, confirmed that in the absence of an express provision specifying a pre-determined notice period, or pay in lieu instead, the early termination of a fixed term contract makes the employer liable to pay the employee to the end of the fixed contractual term. He concluded that the motion judge erred in holding that the appellant was only entitled to common law damages and that a duty to mitigate applied. Instead, he held that the appellant was entitled to damages for the early termination of his contract, in an amount equal to his salary and benefits for the unexpired term.

Further, where a fixed term contract is silent on mitigation, absent an express provision addressing mitigation, a dismissed employee does not have an obligation to mitigate his or her damages. This conclusion is summarized in para. 44:

In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd. (1960), 24 D.L.R. (3d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).

MITIGATION AS A CONTINGENCY FACTOR

[ Pink Floyd might ask “What shall we do now?”]

An interesting situation arises when a case reaches trial, and the dismissed employee has not re-employed. When the awarded notice period extends beyond the trial date, does the employee receive the benefit of the entire notice period? Employer clients are happy to hear that the employee is still subject to the duty to mitigate for the balance of the notice period.

The courts have applied three different approaches to deal with the situation. The three approaches were recently discussed in the decision of Zoldowski v. Strongco Corp., 2015 ONSC 5485 (CanLII) at para. 20 [Zoldowski]:

Which approach has been taken depends on the judge and the facts of the case. For example, in Paes v. Cascades Canada ULC, 2015 ONSC 7356 (CanLII), Justice Faieta found in favour of the plaintiff. With a reasonable notice period of 21 months that extended beyond the trial date, he found that the most practical and efficient way to address a future duty to mitigate was to apply a contingency. At 63 years old, and after working 26 years with the same employer, Justice Faieta concluded that it was very unlikely the plaintiff would re-employ, and applied a contingency of 1% to the award, reducing the award from 21 to 20.8 months pay in lieu of notice.

It is very unlikely that the Plaintiff will find comparable employment. In the circumstances, the most practical and efficient way to address this future duty to mitigate is to apply a contingency as this Court did in Hussain rather than to use one of the other two approaches. It is my view that the Plaintiff has about a 1% chance of finding comparable employment prior to the end of the reasonable notice period. Accordingly, I reduce the Plaintiff’s reasonable notice period from 21 months to 20.8 months.

Then, in Paquette v. TeraGo Networks, 2015 ONSC 4189 (CanLII) [Paquette], Justice Perell favoured the trust and accounting approach and rejected the partial summary judgment approach, at paras. 68-70:

Yet, in Markoulakis v. SNC-Lavalin Inc., 2015 ONSC 1081 (CanLII) [Markoulakis] and Russo v. Kerr, 2010 ONSC 6053 (CanLII) [Kerr], both courts preferred the partial summary judgement. In Markoulakis, Justice Pollak found that the partial summary judgment approach allows the possible creation of an evidentiary record sufficient to “fairly and justly adjudicate the dispute” [para. 24]. In Kerr, Justice Gray reasoned that the partial summary judgment approach avoids turning the duty to mitigate into a theoretical duty only.

More recently, a fourth approach, a hybrid crafted out of the trust and accounting, and the partial summary judgment, approaches has emerged. In Lalani v. Canadian Standards Association, 2015 ONSC 7634 (CanLII), Justice Diamond ordered that a trust in favour of the employer be impressed upon the damages award paid to the employee during the balance of the notice period, with the employee required to account to the employer on a monthly basis on his mitigation efforts and any mitigation income earned. This approach relies on the employee’s transparency in accounting to avoid the impracticality of having the parties return to court.

UNREASONABLE JOB SEARCH

[or, as James Ingram might lament “I did my best but I guess my best wasn’t good enough…”]

What are the parameters of a “reasonable search” for comparable employment?

As stated above, the onus is on the employer to show that the dismissed employee has failed to conduct a reasonable job search. The stakes can be high, as where a court finds that a dismissed employee has not taken reasonable steps to search for new employment and mitigate the loss of employment, that employee may suffer a significant reduction in a court awarded notice period. The quantification of the appropriate reduction has been problematic.

For instance, in Robinson v. Team Cooperheat-MQS Canada Inc., 2008 ABQB 409 (CanLII), where the employer refused to allow an employee to withdraw a resignation hastily given after a heated meeting, the plaintiff successfully sued for wrongful dismissal. In reviewing the plaintiff’s efforts in mitigation, the Court reconfirmed that the “test is not whether there was a particular job open” for the plaintiff, but “whether the plaintiff acted reasonably in seeking alternative employment, and whether had he attempted, it is probable he would have secured employment” [para. 124]. The Court found that the plaintiff’s mitigation efforts were sporadic at best and that the evidence established an unprecedented boom in the industry during the plaintiff’s notice period. As such, had the plaintiff taken reasonable steps to re-employ, he likely would have easily found similar employment. The Court consequently decreased the 18-month notice otherwise applicable period by 6 months (a reduction of over 30%), for failure to mitigate.

In Hyland v. Advertising Directory Solutions Inc., 2014 ABQB 336 (CanLII) [Hyland], the Court acknowledged the difficulty in quantifying a failure to mitigate [para. 73]:

Quantification of the failure to mitigate is a difficult assessment. There is little assistance from the caselaw as to how to quantify a failure to mitigate. In the absence of evidence of a specific job that was available to the plaintiff, the amount by which damages are reduced seems to be arbitrary.

In examining other decisions, Hyland provides various factors to be considered in quantifying mitigation [para. 80]:

In quantifying an appropriate reduction of Mr. Hyland’s notice period, I find the recent decisions by this Court in Johnson v Top-Co Ltd, 2009 ABQB 731 (CanLII), 488 AR 182 (“Johnson“) … to be persuasive. In Johnson, the plaintiff made no effort to explore the job market, and instead became self-employed. The plaintiff in that case actually had two specific opportunities to obtain full-time employment, but failed to follow-up with the potential employers, in part due to health concerns. As a result, there was no evidence as to whether these positions would have been suitable replacement employment. There was, however, clear evidence that the plaintiff in Johnson had skills that were valued in the industry, based on the lengthy period of time it took the defendant to replace him and a feeling in the industry at the time that there were more jobs available than there were qualified personnel.

The Court also recognized that following dismissal, employees generally need not immediately start their job search, since time might be required to recover from the shock of dismissal. Further, while the plaintiff’s mitigation efforts need to be reasonable, they do not need to be “perfect” [Paquette at para. 46].

The decision of Day v. JCB Excavators Ltd., 2011 ONSC 6848 (CanLII) [Day], is also helpful in quantifying mitigation. The plaintiff, Mr. Day, spent his entire working career in the agricultural, heavy industrial and construction equipment industries. The employer had eliminated Mr. Day’s employment following an economic downturn in the heavy machine industry. The economic downturn was industry-wide and eventually extended to all of Canada. Following his termination, Mr. Day turned to self-employment and started a tree farm, which did not generate any immediate income for him.

The Court upheld Mr. Day’s action for wrongful dismissal and accepted that “his decision to start a tree farm was a reasonable one even though an immediate source of revenue was not generated from that source” [para. 107]. The Court also found that the employer had provided no evidence suggesting that “similar employment [was] available even if Mr. Day had acted with greater diligence” [para. 106].

Although there are decisions where the dismissed employee’s decision to start a new business was not well received, in Day, the Court relied on the decision of Peet v. Babcock & Wilcox Industries Inc., 2001 CanLII 24077 and did not reduce Mr. Day’s notice period for failure to mitigate [para. 109]:

Finally, not every job offer must be accepted. In some circumstances, it is reasonable for an employee to not accept a job offer . More recently, in the Ontario Superior Court decision of Tsakiris v. Deloitte & Touche LLP, 2013 ONSC 4207 (CanLII), the Honourable Justice Michael A. Penny held that it was reasonable for an employee to defer accepting a job offer when it was still possible that a comparable and better position might yet come along.

———

[1] Lai-King Hum is the Principal and Senior Lawyer of Hum Law Firm. She thanks Allisa Wu, a lawyer with the firm, for her assistance with this paper.

[2] Cited recently in the employment law context: Bowes v. Goss Power Products Ltd., 2012 ONCA 425.

[3] Boland v. APV Canada Inc., 2005 CanLII 3384 (ON SCDC), 38 C.C.E.L. (3d) 95 (Ont. Div. Ct.) at para. 23.

[4] Graham, at para. 50:

I confess that I do not find it easy to reconcile all of these cases. However, I believe that the following general conclusions can be drawn from them:

(a) whether a contract is a fixed term contract or a contract of indefinite duration, the principle of mitigation applies to a claim arising from any breach of that contract, and;

(b) in cases where there is an agreed upon severance provision, the principle of mitigation also applies to that provision, but;

(c) there is an exception to that second conclusion in cases where the contract of employment can be interpreted as having exempted, either expressly or by implication, the employee from the duty to mitigate. Examples of such exemptions are:

(i) an express wavier of the duty to mitigate as in Neilson;

(ii) an express obligation to continue to make the payments under the employment contract as in Paquin;

(iii) where the contractual provision provides that the severance amount is payable immediately at, or very shortly after, the time of the termination as in Borkovich and Rossi. In such cases, the fact that the payment is to be made prior to the time when either the employer or the employee could know whether mitigation could occur implicitly suggests a waiver of that obligation.

[5] See Goldsmith v Sears Canada Inc., 2015 ONSC 3214 (CanLII)