Canada: Certain Earnings During Notice Period Not Considered Mitigation

Last Updated: August 18 2017
Article by Karen Tereposky

On May 23, 2017, the Ontario Court of Appeal upheld the decision of the Superior Court of Justice in the case of Brake v. PJ-M2R Restaurant Inc. 2016 ONSC 1795, 2017 ONCA 402, endorsing the lower court's finding that certain earnings during the notice period should not be deducted from damages for pay in lieu of notice. Those earnings, found to be from a "much inferior position" to that from which the employee was wrongfully dismissed, were held not to be amounts earned in mitigation of damages.

The facts in the case as found by the trial judge, briefly, were as follows. 

Esther Brake worked for McDonald's restaurants for more than 25 years, and approximately 20 of those years were worked for the Defendant (or explicitly recognized in the employment contract). The Defendant, ("PJ-M2R") was a holding company with several McDonald's restaurants in Ottawa. In 2004, Ms. Brake was promoted to the position of store manager and she maintained a management role until her dismissal, at which time she was 62 years old.

Although Ms. Brake had a history of "excellent" performance reviews, in November of 2011 she received her first negative review. She was shocked with the negative review. Prior to this review, Ms. Brake was managing PJ-M2R's Kanata McDonalds and also a nearby McDonalds within a Wal-Mart, but after the November 2011 review, she was transferred exclusively to the Wal-Mart location which transfer was put forward as an opportunity to improve her performance. However, the Walmart location was smaller with lower sales and fewer employees and was more difficult to manage as it had been trending badly, ranking 1,410 out of 1,437 restaurants in Canada. Despite working excessive hours, she was unable to "turn around" the Wal-mart location. In August of 2012, Ms. Brake was therefore informed that she had failed the Goals Achievement Process program and that she had to "take a demotion or go." The Defendant offered her the position of first assistant, which had a similar salary but substantially inferior benefits and would mean that Ms. Brake would be reporting to younger, less experienced employees, some of whom she had trained and supervised. The Court held that this would have been embarrassing or even humiliating for Ms. Brake. As Ms. Brake refused to accept the demotion, she was ultimately dismissed for cause. 

Ms. Brake brought an action for wrongful dismissal, claiming damages for common law notice plus her statutory entitlements. At trial, the court found that the Defendant had not been entitled to dismiss her for cause. The Court held that she had not been given any clear and reasonable opportunity to correct the alleged issues with her performance but instead was transferred to a "flailing branch" and expected to "turn it around," which was arbitrary and unfair. The decision by Ms. Brake to consider herself constructively dismissed by the Defendant notwithstanding the offer of continued lesser employment was held to be reasonable. The Court set the reasonable notice period at 20 months and awarded damages for compensation in lieu of notice of $104,499.33.

The Court further held that, "despite her reasonable best efforts," she was unable to secure a reasonably comparable management position during the notice period.  During the notice period, she had increased her hours at Sobey's as a cashier (a position that she had long held, which was known to the Defendant), had worked part time at Tim Horton's, and had attempted to start a babysitting and cleaning service. She applied for many positions and eventually accepted a cashier position at Home Depot. The Superior Court held that "her ability to find employment does not take away from the loss she suffered from being dismissed without cause. The cashier position she now occupies at Home Depot is so substantially inferior to the managerial position she held with the Defendant that the former does not diminish the loss of the latter." Therefore, monies earned from these "substantially inferior" positions during the notice period were not deducted from the damages for compensation in lieu of notice of $104,499.33.

The Court of Appeal upheld the lower court. Its logic in doing so was that the duty to mitigate requires that a wrongfully dismissed employee use reasonable efforts to find a position reasonably comparable in salary and responsibility to the one from which she was wrongfully dismissed. Earnings from such a position, if secured, would be deducted from damages as mitigation. If the employee were to turn down such a position, or fail to use reasonable efforts to find one, then amounts that could have been earned are deducted from damages as mitigation, based on a failure to meet the duty to mitigate. However, where the employee can only find a position that is not comparable and turns it down, amounts that could have been earned from the position are not deducted since the employee is not required to accept the position in order to meet the duty to mitigate. Therefore, if the employee does accept the non-comparable position, the earnings should not be deducted.

The prevailing view has to this point been that any monies earned during the notice period would reduce the employer's liability to the employee. However, it appears that going forward, employers should now consider that if comparable employment is not available for the wrongfully dismissed employee, the employer may be on the hook for all pay in lieu of notice even if the employee is able to earn money in order to "survive" while awaiting judgment. The idea that any and all amounts earned during the notice period would be deducted from any ultimate judgment previously may have been a disincentive to employees to continue to pursue a better severance package or longer notice period, as the delays of litigation without any income are more than most employees can bear financially. Although facts similar to the Brake case will likely arise infrequently, this Ontario decision, if embraced by the courts in other provinces, could potentially have the effect of employees being less likely to settle quickly in wrongful dismissal cases where they are concerned about financial stability while awaiting a decision from the courts. 

To date, leave to appeal this decision to the Supreme Court of Canada has not been filed.

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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