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A recent Ontario Court of Appeal decision sounds a warning to employers
– if you want to have a set amount of notice or
compensation for termination without cause, AND you want to require
the former employee to mitigate, you need to say so explicitly in
the contract.
Goss Power Products had a written contract with its employee
Bowes that stipulated that he would get six months notice or salary
in lieu of notice if he was terminated without
cause. On termination, Bowes was told he would get six
months salary continuance if he looked for
other employment. He was terminated on April 13,
2011 and started in a new job 12 days later. His former
employer paid him for three weeks (to meet its Employment
Standards obligation), but no more. The court said he
was entitled to the full six months.
There have been different approaches to this issue in the
past. In BC, it has generally been held that a duty to
mitigate arises with any breach of an employment contract. In
employment cases, that means the terminated employee has an
obligation to make reasonable efforts to find suitable alternative
employment and any employment income received during the period of
notice reduces the liability of the former employer. However,
there has been a distinction drawn where the contract stipulated
the payment of a certain amount as the method of termination as
opposed to stipulating the amount payable because
of termination.
The Ontario case is of the former type – even though
the termination letter talked about salary continuance, the
contract actually said the employment could be terminated without
cause "by providing [six months] notice or pay in
lieu." The court did not comment on this distinction but
stated this general proposition:
"...if parties who enter into an employment agreement
specifying a fixed amount of damages intend for mitigation to apply
upon termination without cause, they must express such an intention
in clear and specific language in the contract."
We can argue whether that is correct in all cases where an
amount is stipulated. But rather than having a good argument,
an employer wanting to rely on mitigation should say so clearly in
the contract.
In earlier
posts we looked at other issues in written
employment agreements.
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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