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If an employee is terminated without cause, but finds another
job shortly thereafter, is the employer still liable for damages to
the former employee? In Bowes v Goss Power
Products,1 the Ontario Court of Appeal has held
that, in some circumstances, the employee may be entitled to full
recovery, regardless of the re-employment.
In 2007, Goss Power Products hired Peter Bowes. The employment
agreement stated that Goss was entitled to terminate Bowes'
employment without cause by paying him six months' salary. The
contract also stated that Bowes released Goss from "any and
all claims whatsoever which the employee may have arising out of
the termination" except for those under the employment
contract.
In 2011, Goss terminated Bowes' employment without cause and
without notice. The letter of termination stated that Goss would
continue to pay Bowes his regular salary for six months. The letter
also stated that Bowes had an obligation to seek new employment and
to advise Goss immediately if he found another job.
Less than two weeks after he was terminated, Bowes began a new
job at the same salary he had earned at Goss. Goss informed him
that because he had mitigated his damages, it would pay only the
statutory minimum of three weeks' salary in lieu of notice.
However, Bowes claimed that his employment contract with Goss
entitled him to six months' salary, regardless of
mitigation.
Bowes applied to the Ontario Superior Court to resolve the
dispute. Justice Whitaker of the Superior Court held that the
employment contract did not release Bowes from his duty to mitigate
his damages upon termination. Justice Whitaker, applying recent
case law in Ontario, concluded that since the contract was silent
as to mitigation, mitigation was to be implied into the contract in
the same manner as if the common law applied. In other words, there
was no difference, in Justice Whitaker's view, between a
contractual and a common law notice period: mitigation applied
equally to both. As Bowes had successfully mitigated his damages,
he was entitled only to the statutory minimum of three weeks'
pay in lieu of notice.
The Ontario Court of Appeal disagreed. The five-justice panel
held unanimously that since the parties had agreed to a fixed
notice period but made no specific reference to mitigation, Bowes
was entitled to the full six months' pay. The Court held that
by agreeing to a fixed term of notice, the parties had opted out of
the common-law approach, which would have required the employee to
mitigate his damages. The Court pointed out that although the
employer could have specifically contracted for a mitigation
provision in the employment agreement, it did not do so:
"there is nothing unfair about requiring employers to be
explicit if they intend to require an employee to mitigate what
would otherwise be fixed or liquidated damages".
The Court of Appeal found it significant that employers
generally enjoy superior bargaining strength when drafting an
employment contract. The Court held that since the employer is in a
better position to protect its interests, it is fair to expect the
employer to make its rights very clear in the employment agreement.
The Court held: "It would be unfair to permit an employer to
opt for certainty by specifying a fixed amount of damages and then
allow the employer to later seek to obtain a lower amount at the
expense of the employee by raising an issue of mitigation that was
not mentioned in the employment agreement".
The Court of Appeal also held that the release provision
indicated that "the parties intended that mitigation would not
be required unless the agreement expressly stipulates to the
contrary". The Court did not find it significant that the
release provision only freed the employer from any
common-law obligations to the employee, and not vice
versa.
What is the significance of this decision for employers who wish
to minimize their obligations to terminated employees? A fixed
notice period can provide the employer with certainty and finality,
but it can also free the employee from the common-law duty to
mitigate his/her damages. In response to this decision, employers
should review their standard form contracts, to determine whether
they contain mitigation obligations. If they do not, consideration
should be given to inserting a mitigation requirement into the
contract, if that is the employer's expectation (subject to
ensuring that the employee still receives all minimum employment
standards entitlements). Obtaining legal advice from an employment
lawyer can minimize the risk of unintended consequences.
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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