In this case, Walker acted as an independent representative for
Norcan Aluminium Inc. ("Norcan") until 2007. As
part of its new business strategy, Norcan decided to hire Walker as
head of the Ontario sales team. Following intense negotiations, the
parties signed a three-year employment contract in October 2007
which included an annual base salary plus an annual bonus based on
Despite the fixed term of the contract, a clause allowed Norcan
to terminate it at any time before the end of the term with cause
and without compensation, and to terminate it without cause by
paying three months of base salary and 50% of his base salary for
the amount of time left in the contract.
Several months later, Norcan terminated Walker's employment
but offered to let him continue as an independent representative.
Walker sued Norcan, claiming $155,000 pursuant to the
contractual termination clause.
The Superior Court Decision
Norcan alleged that Walker's failure to meet the sales
targets amounted to a breach of the relationship of trust and
constituted a serious reason for terminating the contract and it
therefore did not owe him any damages. Furthermore, by refusing the
offer to return to his former status, Walker failed to fulfil his
obligation to reduce his damages.
The Superior Court disagreed. It concluded that failure to meet
sales targets related only to Walker's entitlement to a bonus,
and could not provide a basis to terminate for cause.
With respect to the termination monies, the Court said Walker
had an obligation to mitigate his damages. Although Walker was
under no obligation to accept Norcan's offer, monies earned
from another job should be deducted from his termination
entitlement. That left a difference of only $4,522.
The Court of Appeal Decision
The Court of Appeal confirmed the Superior Court's
conclusions on the cause issue. However, it came to a different
decision on the mitigation issue.
For the Court of Appeal, the termination provision in question
was a liquidated damages clause, for the employee's benefit. As
such, in Quebec law it was a penal clause fixing the damages in
advance. Article 1623 of the Civil Code of
Quebec provides that an employee can avail himself of such a
clause without having to prove the injury he has suffered. In
other words, the obligation to mitigate damages does not apply in
such a case.
The Court of Appeal therefore granted Walker the full amount
provided for in the contract clause - $153,278.
A Lesson for Employers
The general principle involving employment termination is that
an employee has a duty to mitigate his damages. As a result, the
employment income an employee earns following a dismissal is
normally deducted from the damages he may be awarded in court.
However, certainly in Ontario and Quebec, employers must
specifically state if termination monies pursuant to an employment
agreement or offer letter are subject to mitigation. If
employers don't say so, they likely won't be able to have
the benefit of the employee's mitigation.
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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