Last fall, we reported on the mysteries of mitigation. Those articles ( Mysteries of Mitigation: Narrowing of an Employee's Duty to Mitigate and More Mysteries of Mitigation) reported on the Ontario Court of Appeal's decision in Bowes v. Goss Power Products Ltd. that confirmed that the duty to mitigate does not apply where employment contracts contain specific termination payments and the employment relationship is terminated without cause. The Quebec Court of Appeal has recently come to the same conclusion, in Walker v. Norcan Aluminium Inc , 2012 QCCA 2042 (PDF - available in French only). This decision extends the principle to another province.
The Facts
In this case, Walker acted as an independent representative for Norcan Aluminium Inc. ("Norcan") until 2007. As part of its new business strategy, Norcan decided to hire Walker as head of the Ontario sales team. Following intense negotiations, the parties signed a three-year employment contract in October 2007 which included an annual base salary plus an annual bonus based on sales.
Despite the fixed term of the contract, a clause allowed Norcan to terminate it at any time before the end of the term with cause and without compensation, and to terminate it without cause by paying three months of base salary and 50% of his base salary for the amount of time left in the contract.
Several months later, Norcan terminated Walker's employment but offered to let him continue as an independent representative. Walker refused.
Walker sued Norcan, claiming $155,000 pursuant to the contractual termination clause.
The Superior Court Decision
Norcan alleged that Walker's failure to meet the sales targets amounted to a breach of the relationship of trust and constituted a serious reason for terminating the contract and it therefore did not owe him any damages. Furthermore, by refusing the offer to return to his former status, Walker failed to fulfil his obligation to reduce his damages.
The Superior Court disagreed. It concluded that failure to meet sales targets related only to Walker's entitlement to a bonus, and could not provide a basis to terminate for cause.
With respect to the termination monies, the Court said Walker had an obligation to mitigate his damages. Although Walker was under no obligation to accept Norcan's offer, monies earned from another job should be deducted from his termination entitlement. That left a difference of only $4,522.
The Court of Appeal Decision
The Court of Appeal confirmed the Superior Court's conclusions on the cause issue. However, it came to a different decision on the mitigation issue.
For the Court of Appeal, the termination provision in question was a liquidated damages clause, for the employee's benefit. As such, in Quebec law it was a penal clause fixing the damages in advance. Article 1623 of the Civil Code of Quebec provides that an employee can avail himself of such a clause without having to prove the injury he has suffered. In other words, the obligation to mitigate damages does not apply in such a case.
The Court of Appeal therefore granted Walker the full amount provided for in the contract clause - $153,278.
A Lesson for Employers
The general principle involving employment termination is that an employee has a duty to mitigate his damages. As a result, the employment income an employee earns following a dismissal is normally deducted from the damages he may be awarded in court. However, certainly in Ontario and Quebec, employers must specifically state if termination monies pursuant to an employment agreement or offer letter are subject to mitigation. If employers don't say so, they likely won't be able to have the benefit of the employee's mitigation.
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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