Canada: Must Terminated Employees Mitigate Losses Despite Lack Of Express Mitigation Language In Their Employment Agreement? Ontario Court Says "Yes"

In the recent Ontario Superior Court of Justice case of Bowes v. Goss Power Products Ltd., the Court found that an employee was responsible to mitigate his loss of employment, notwithstanding the fact that his employment contract was silent as to any obligation to mitigate. The employment contract was significantly favourable to the employee, providing a notice period in excess of statutory notice period standards. The Court found that the employee was not entitled to any damages after he found significantly similar employment 12 days after he was dismissed.

Facts:

The employee, Mr. Bowes, was hired by Goss Power Products Ltd. on October 9, 2007 as the Vice-President, Sales and Marketing, and was paid an annual salary of $140,000 plus benefits and bonus. Prior to commencing employment, Mr. Bowes signed an employment contract which provided that upon termination without cause, he would be entitled to six (6) months of notice if his employment was terminated prior to the completion of forty-eight (48) months of service. This provision was favourable to Mr. Bowes in that it clearly exceeded his statutory entitlements and likely exceeded his common law entitlements to a notice period following the termination of his employment.

It is important to note that while the employment agreement was fulsome and provided substantial release language, it was silent as to the obligation of Mr. Bowes to mitigate his losses following termination. "Mitigation" in this context refers to the obligation of former employees to take steps that a reasonable person in their situation would in order to secure similar employment if it is available during the notice period. At common law, any earnings from new employment within the notice period can reduce pay in lieu of notice obligations of the former employer to the dismissed employee.

Mr. Bowes, was terminated without cause on April 13, 2011, and therefore was entitled to the notice provision set out above. However, on April 25, 2011, Mr. Bowes began employment with a new employer earning the same salary as he did with Goss. The actual salary loss was for the twelve day period of April 13 to 25, 2011. The question before the court was whether Mr. Bowes had an obligation to mitigate his losses, and if not, whether he was owed a lump sum payment for the amounts owing under the employment contract.

The Court's Decision:

In his decision, Justice Whitaker undertook a review of the law regarding the mitigation of damages in cases where the employment agreement specified the period of reasonable notice, including the leading case of Graham v. Marleau, Lemire Securities Inc. The Court in Graham held that the principle of mitigation applies generally to the calculation of damages, whether expressed in contract or flowing from a breach of contract. Parties are able to contract out of the obligation to mitigate, but must do so either expressly or by implication.

Looking at the facts at hand, it was clear that the parties were clear in setting out the notice period, the basis for calculating wages owing during the notice period, the extent of the release, the boundaries of the entire agreement and the manner in which amendments to the contract were to be manifest. However, the certainty providing in these matters did not mean that the parties agreed to relieve Mr. Bowes of his obligation to mitigate.

Justice Whitaker concluded:

[30] To reiterate, the real substance of Graham and those cases which follow is the notion that the core question for the court to answer is - what did the parties intend? Certainly the parties could if they had so wished, provide that Bowes owed no duty to mitigate his losses. Where the law following Graham clearly indicates that mitigation will be assumed as a general principle of contract law, the parties must in their choice of language, indicate that the presumption is rebutted.

[31] While I accept that the parties did turn their minds to a variety of issues that would arise in the application of the employment contract, I cannot conclude that it is agreed that mitigation does not apply to the calculation of damages.

As there was an obligation of Mr. Bowes to mitigate, and he did in fact mitigate by obtaining similar employment nearly immediately following his dismissal from Goss, there were no damages owing to Mr. Bowes other than for the period of twelve days between his dismissal from Goss and the finding of subsequent employment. Given this decision, there was no need to examine the second question of whether Mr. Bowes was entitled to payment of damages in a lump sum.

Our Views:

This case is encouraging from the employer's perspective, in that it reinforces the concept that employees have a common law obligation to mitigate their losses following termination of employment, unless the employment contract expressly or impliedly provides that obligation is not required.

Employers who have terminated an employee with an obligation to mitigate should ensure they are informed if and when the former employee obtains subsequent employment, as this will have an impact on the payment of further obligations under contract.

Finally, it is important to note that the courts have held there is NO obligation to mitigate losses as it relates to the termination or severance pay entitlements under the Ontario Employment Standards Act, 2000 and such entitlements are not subject to mitigation if a new position is obtained.

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