When an employee seeks damages for wrongful dismissal against their former employer, the employee must make reasonable attempts to mitigate their damages throughout the sought after notice period. However, does this obligation to mitigate still exist when an employee is terminated in accordance with an employment contract which provides for a certain amount of notice upon termination? This question was recently considered in the Ontario Superior Court of Justice decision of Bowes v. Goss Power Products Ltd.
Background
The employee, Peter Bowes, entered into a written employment contract with the employer, Goss Power Products Ltd., on September 26, 2007, which included a termination clause stating that if Mr. Bowes was terminated without cause prior to completing forty-eight months of service with the employer, then Mr. Bowes would receive six months’ notice of termination. Mr. Bowes began employment with the employer on October 9, 2007.
On April 13, 2011, being prior to forty-eight months of employment elapsing, the employer terminated Mr. Bowes without cause. Mr. Bowes received his termination letter which stated that he would be paid his salary for six months and that he was required to seek alternate employment during this period and was to keep the employer informed of his efforts to obtain re-employment.
On April 25, 2011, being only twelve days after being terminated by the employer, Mr. Bowes became re-employed with a new company earning the same salary as he had with Goss Power Products Ltd. at the time of termination.
Thereafter, Mr. Bowes brought an application against the employer seeking the Court’s interpretation of the termination clause in the employment contract regarding, inter alia, whether he was obligated to mitigate his losses following termination.
Decision by the Ontario Superior Court of Justice
After reviewing pertinent case law on the topic, the Court found, “that the principle of mitigation applies generally to the calculation of damages, flowing from either a breach of and/or application of contract. It is acknowledged that parties are certainly competent to contract out of this obligation, expressly or by implication. The task however is to determine the intention of the parties. In this exercise, the mere fact that the parties have agreed on the period of reasonable notice does not mean that the obligation to mitigate is ousted by agreement.”
Applying this concept of intention to the above matter, the Court concluded that although Mr. Bowes and the employer “turned their minds to a variety of issues that would arise in the application of the employment contract, I cannot conclude that it is agreed that mitigation does not apply to the calculation of damages.” Therefore, the Court found that the employment contract did not remove Mr. Bowes’ obligation to mitigate his damages despite having agreed to the amount of notice that he would be entitled to if terminated without cause prior to commencing employment with the employer.
Points of Note
Many employment contracts contain a termination clause which attempts to restrict the amount of notice that an employee may be entitled to upon termination without cause. However, as the case above demonstrates, unless it can be demonstrated that the parties agreed, either expressly or implicitly, to remove the employee’s obligation to mitigate, the employee will not be relieved of this common law duty.
This decision lends itself to the notion that notice of termination is only provided to an employee as financial compensation for the period of time that it is reasonably expected to take the employee to obtain re-employment. If the employee finds re-employment within this period of time, then the employee may not be entitled to the remainder of the notice period as they have successfully mitigated any future damages related to their termination.
Given that it is the intention of the parties that will be considered in determining whether or not an employee’s duty to mitigate has been removed, both employees and employers should ensure that any termination clause that is being agreed upon correctly indicates the parties’ intentions, otherwise such obligations may thereafter be removed or added.
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See also our published article, No implied duty to mitigate: Court, published in Canadian Employment Law Today, July 25, 2012.
Related Employment Law Articles
- “Employee Fired After Refusing Contract Changes” Published in Canadian Employment Law Today Issue No. 517 – September 10, 2008
- “Are written employment contracts necessary?” Published in The Canadian Employer, May 2008
2 Comments on "Employee’s Obligation to Mitigate May Be Removed Expressly or Implicitly"
In other words, from the employee’s perspective, it is probably better to take any pre-negotiated termination payments in a lump sum instead of over time as is the case of Mr. Bowes. Unless, of course, the employer inserts a “refund” clause that is triggered by re-employment.
The Court in this decision did not speak as to whether an employee’s duty to mitigate is removed or left in place by a lump sum payment of notice. Generally speaking, if notice is being paid in one lump sum installment, then such a payment is usually not affected by mitigation earnings. This is why salary continuance, from an employer’s perspective, is a more financially attractive option, as any earnings that the employee makes during the notice period may reduce the total amount of notice that must be paid. However, not all lump sum payments of notice are immune to the duty to mitigate. Notice that is provided in more then one lump sum payment may be affected by an employee’s duty to mitigate if earnings are made prior to the final installment being paid.