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The Ontario Court of Appeal has released a decision finding that
a dismissed employee did not have an obligation to mitigate damages
from the loss of his employment when he had an employment agreement
that stipulated what he would receive if he was dismissed without
cause.
In Bowes v. Goss Power Products Ltd.,1 the
parties negotiated a severance provision in the employment
agreement which provided for six months of notice, or pay in lieu,
if Bowes' employment was terminated without cause. After Bowes
was dismissed without cause, he found employment two weeks later at
the same salary. The employer ceased paying him the contractual six
months of notice as it believed Bowes had mitigated any damages
arising from the loss of his employment.
Bowes brought an application seeking to enforce the terms of the
contract. The application judge found against Bowes, holding that
there is a duty on an employee to mitigate the loss of his
employment even if there was a contract that set out what the
employee would receive upon dismissal. Consistent with the previous
jurisprudence, the application judge found that the duty to
mitigate applied unless the contract relieved the employee of the
duty to mitigate.
In overturning the application judge's decision, the five
judge panel of the Ontario Court of Appeal held that by agreeing to
a fixed notice period, the parties have contracted out of the
common law concept of damages in lieu of notice, where the duty to
mitigate arises. Instead, the parties have negotiated a liquidated
damages clause or contractual sum that is not subject to the duty
to mitigate.
In coming to this conclusion, the Court found that it would be
unfair to permit an employer to raise the issue of mitigation after
the employee has been terminated. The employer has ousted the
common law by fixing an amount to be provided upon dismissal and
cannot then seek to lower its contractual exposure if the employee
obtains new employment after dismissal.
What this means for employers
There are many advantages to defining in advance the amount of
notice, or pay in lieu, an employee will receive if the employee is
dismissed without cause. It allows the parties to determine the
amount of notice, how it will be calculated and paid, and most
importantly removes the need to resort to litigation to determine
what would be considered reasonable notice. By reversing the
previous jurisprudence in Ontario, the Court of Appeal's
decision requires employers to either expressly deal with
mitigation in the employment agreement or lose the ability to claim
a reduction based on mitigation. Employers should review their
employment agreements to ensure that mitigation is dealt with in
the termination provision.
Footnotes
1 2012 ONCA 425, released on June 21, 2012
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
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