In Pakozdi v. B & B Heavy Civil Construction Ltd., 2018 BCCA 23, the B.C. Court of Appeal clarified how to treat replacement income in the calculation of damages for a wrongfully dismissed employee.
Facts
Mr. Pakozdi was a 55-year old bid estimator and construction professional. He worked as a private consultant prior to the commencement of his employment with B & B in early January 2014. B & B agreed that Mr. Pakozdi could continue providing consulting services to some of his personal clients while employed so long as that did not create a conflict of interest or interfere with his regular duties.
In January 2015, after approximately one year of employment, B & B terminated Mr. Pakozdi's employment without cause and provided him with $5,000 or approximately two weeks of notice. At the time of his dismissal, Mr. Pakozdi's salary was $130,000 a year. While employed with B & B, he had also earned $30,900 from his consulting business, with his highest earnings in one month being $9,600.
Mr. Pakozdi sued for wrongful dismissal. In the five months following the termination of his employment, Mr. Pakozdi earned approximately $80,000 from his consulting business.
Lower Court Decision
The lower court determined that Mr. Pakozdi was entitled to five months of notice. The court then increased the notice period by a further three months on the basis that Mr. Pakozdi had a medical condition which would make it difficult for him to obtain new employment, setting the total notice period at eight months.
The court then addressed the mitigation issue and determined that Mr. Pakozdi's post-termination earnings should not be taken into account when calculating damages. The employer was aware that Mr. Pakozdi was working two jobs while he was employed.
Consequently, Mr. Pakozdi was awarded $94,440 in damages.
Appeal Decision
B & B appealed, arguing, in part, that:
- Mr. Pakozdi was not entitled to eight months of notice when he was only employed for twelve months; and
- the lower court erred in not deducting all or part of Mr. Pakozdi's post-termination earnings because they were replacement earnings and he had mitigated his damages.
First, the Court of Appeal addressed the length of the notice period, considering Mr. Pakozdi's twelve months of employment. Although the Employer argued that a two or three-month notice period was proper, the Court upheld the five-month notice period as within the range of reasonableness — although perhaps on the high side — in light of Mr. Pakozdi's age, length of service and position.
Second, the Court of Appeal addressed the additional three months of notice awarded for Mr. Pakozdi's "worsened medical condition". The Court determined his medical condition was not a proper basis upon which to extend the notice period, largely based on the fact he was clearly capable of working through the notice period as demonstrated by his continuing to work at his consulting business. The notice period was accordingly left at five months.
Third, the Court of Appeal addressed the mitigation issue. The law is not that all income from a second job is excluded from damages calculations, but rather the income from the second job which could have been earned had the employment from the first job continued. In other words, the question is whether the new income is replacement income (regardless of the source of the income) or a continuation of supplementary income which was being earned prior to the dismissal.
The Court of Appeal held the lower court erred in failing to deduct any of the post-termination income received by Mr. Pakozdi. The Court did not, however, agree that all of the post-termination income should be deducted. It determined that Mr. Pakozdi could have earned approximately $50,000 in the five-month notice period had he still been working at B & B. Mr. Pakozdi made $80,000 in the five months following his dismissal. Approximately $30,000 could therefore properly be characterized as replacement income. The damages award was reduced by $30,000 for a net award of $24,165.
Lessons for Employers
Termination clause: Short-term employees can claim large common law wrongful dismissal amounts. In this case, five months of severance for a twelve-month employee was deemed reasonable. Ensure your employment contracts have a strong termination provision limiting severance.
Duty to mitigate: Be aware that if an employee has a second job, earnings from that job will not necessarily count as earnings in mitigation. It will only be those earnings representing the difference between what the employee could have earned while working for you and what he or she actually earned.
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.
