In this decision, the Ontario Court of Appeal held that where an
employment contract stipulates a specific amount of payable notice
upon termination, the employee is under no obligation to mitigate
his or her damages. Instead, the pay in lieu of notice amount is
treated as an amount owed under the contract. As such, the
terminated employee has no duty to mitigate and can seek employment
elsewhere and remain entitled to the entire notice amount payable
under the contract.
A year and a half later, it is clear that this decision is gaining
traction across the country. Bowes has been cited in four
different decisions – two in British Columbia, one from
Alberta and one in Ontario. While relying on Bowes to
varying degrees, each of these decisions have upheld the principle
that an employee does not owe a duty to mitigate if his or her
contract contains a specified payable notice provision. The four
decisions are briefly summarized below:
In Freudenberg Household Products Inc. v
DiGiammarino (2012 ONSC 5725), Justice Morawetz was
requested to interpret a contractual provision, which entitled an
employee to two years' compensation following termination. The
Court expressly followed Bowes and forced the employer to pay the
full contracted notice amount. Notably, the contract was only for a
fixed four-year term. Nevertheless, the Court appears to have
treated the duty to mitigate under that contract no differently
than how Chief Justice Winkler did in Bowes, where the contract in
issue was for an indefinite term.
In Allen v Ainsworth Lumber (2013
BCCA 271), the British Columbia Court of Appeal took Bowes a step
further in ruling against an employer that attempted to work around
a contracted notice by asking the employee to not report to work
during that time. The Court held that the employee had actually
been dismissed and, using Bowes to support its decision, required
the employer to pay the full contractual notice amount.
In Maxwell v British Columbia (2013
BCSC 1386), the Court cited both Bowes and
Ainsworth, and confirmed that where there exists a
contractual severance provision, a dismissed employee is entitled
to that specified amount without also being required to mitigate. A
duty to mitigate only arises where such a duty is imposed in the
contract. Of note, the employee's decision to decline
alternative employment subsequent to her termination was deemed to
In Lovely v Prestige Travel (2013
ABQB 467), the main focus was the enforceability of the employment
contract. Once the Court found that a valid contract existed,
Bowes was cited in ruling that a duty to mitigate does not
arise where there is an express contractual term which allows the
employer to terminate a fixed-term contract by paying a certain
amount of notice. The Court also held that fixed-term contracts
should be treated no differently than contracts of indefinite
duration. As such, just as an employer is now required to pay the
full notice amount specified under an indefinite contract, an
employer ought to be required to pay the full amount owed for a
fixed term, absent a provision stating otherwise.
What This Means for Employers
Bowes and the decisions mentioned above confirm that
employers wishing to prevent an employee from obtaining a windfall
following termination must expressly establish a duty to mitigate
in the employee's contract. Courts will now view the
requirement to pay the entire specified notice period upon
termination in an employment contract, whether fixed-term or
indefinite, as a contractual obligation. Moreover, it is possible
that an employee with a fixed-term contract will be entitled to the
full sum owed under that contract without having to mitigate,
absent an express provision stating otherwise.
Employers should continue to review their employment agreements
to ensure that mitigation is addressed within the termination
provisions. If not, employers face the risk of having to pay the
kind of windfall envisioned in the decisions discussed above.
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.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).