Last week we reported on the Ontario Court of Appeal's
decision in Bowes v. Goss Power Products Ltd., which found that an
employee does not have a duty to mitigate where an employment
contract contains a fixed severance entitlement but no express
requirement to mitigate. The Court of Appeal relied on a number of
factors in coming to this conclusion which should provide a clear
warning to employers across the country. This article sets out
those factors and suggests ways in which employers can make their
employment agreements or offer letters more bullet-proof.
Factors Relied on by the Court of Appeal
In concluding that termination payments in an employment
agreement are not subject to the duty to mitigate unless the
agreement specifically says so, the Court relied on the following
By contracting for a fixed sum, the parties contracted out of
the common law"reasonable notice" approach or damages in
lieu thereof. There is no material difference whether the quantum
contracted for is fixed or readily calculable from the terms of the
By specifying an amount, the stipulated quantum is
characterized as either liquidated damages or a contractual
Mitigation is a live issue at law only where damages are at
large, i.e. damages in lieu of reasonable notice. Mitigation is not
applicable if the damages are either liquidated or a contractual
It would be unfair to permit an employer to achieve 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.
It is counter-intuitive and inconsistent for the parties to
contract for certainty and finality, and yet leave mitigation as a
live issue with the uncertainty, lack of finality, risk and
litigation that would ensue as a consequence.
A broad release in an employment agreement demonstrates an
intention to avoid resort to the courts, confirms a desire for
finality, and bolsters a finding that the parties intended that
mitigation would not be required unless the agreement expressly
stipulates to the contrary.
Thus, where an employer opts to have an employment agreement
containing a fixed severance entitlement and they intend for
mitigation to apply upon termination without cause, they must
express such an intention in clear and specific language in the
Implications for Employers
Mitigation is not the only area where it can be important to
have clear and specific language. We recommend that when
preparing offer letters or employment agreements, employers take
the time to explicitly set out other things such as:
whether termination monies will be paid by way of lump sum or
continuing payments, and whose decision it is where payment can be
made either way;
whether working notice can be provided instead of termination
monies and, if so, whether that decision is at the employer's
whether the employee will have to sign a Release prior to
receiving the termination monies. If so, include the form of
Release the employee will have to sign;
how much bonus, if any, the employee is entitled to for the
portion of the year leading up to termination, as well as following
termination. If there is any bonus entitlement, how it will be
calculated and when it will be paid;
which benefits and for what period, if any, will be continued
– the statutory notice period only or beyond?
what other benefits/perks, if any, the employee is entitled to
compensation for in respect of the notice period and, if so, how
will this be calculated;
which obligations – non-compete, non-solicit,
non-disclosure of confidential or other information –
continue post termination and for how long;
the amount of notice the employee is required to give upon
whether the employee can be temporarily laid-off in accordance
with employment or labour standards legislation.
The Court of Appeal's decision also stresses the importance
of fairness to employees. If an employer is trying to limit a
former employee's entitlement to something included for the
employer's benefit, courts will likely be more ready to find in
favour of the former employee if not sufficiently
explicit. Employers across the country should keep this in
mind when preparing offer letters or employment agreements.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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