The Duty to Mitigate: Overview
The duty to mitigate requires a plaintiff who has suffered a loss as a result of a defendant’s breach of contract to take reasonable steps to lessen or alleviate that loss. In the employment context this means that an employee who has suffered a termination of employment has a legal obligation to take reasonable steps to attempt to find comparable new employment. A court will reduce most monetary awards made to former employees by the amount of employment income the employees earned from other sources during the reasonable notice period.
The exception to this statement is if the employee finds new employment after his or her dismissal that is not comparable. The Ontario Court of Appeal held in Brake v. PJ-M2R Restaurant Inc.1 if an employee is forced to accept a much inferior position the amount he or earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.
The underlying policy reason why a dismissed employee has a legal obligation to seek new employment is because the purpose of providing notice is to give the employee time to find new work. It is not to reward the employee for his or her past service or to punish the employer for dismissing the employee.
The employer bears the evidentiary burden of proving that the employee did not take reasonable steps to attempt to mitigate his or her damages. It is a heavy burden. The employer must prove that the employee would likely have found a comparable position reasonably adapted to his or her abilities and that the employee failed to take reasonable steps to find that comparable position.2 The employer must show that the dismissed employee’s conduct was unreasonable, not in one respect, but in all respects.3
The dismissed employee is not obliged to accept employment that is not comparable to his or her former job.4
If a dismissed employee fails to take reasonable steps to attempt to find new employment a court may reduce the notice period awarded to the dismissed employee. Therefore, it is important for any dismissed employee who is considering starting a wrongful dismissal action to document his or her job search to be able to establish that he or she has taken reasonable steps to find new employment.
The process a court will follow when determining the amount of damages to award the dismissed employee is to first determine the dismissed employee’s reasonable notice period. The judge will then calculate the damages suffered during the reasonable notice period by calculating the compensation and benefits the employee would have earned during his or her reasonable notice period had the employee not been dismissed. Any employment income that was earned by the plaintiff from other sources during the reasonable notice period will then be deducted. For example, if a court awards the dismissed employee ten months’ notice in the amount of $75,000 and the dismissed employee earned $25,000 from another job during that ten month period, the court’s final award to the dismissed employee will be $50,000.
In certain situations, such as a constructive dismissal, the duty to mitigate may require a dismissed employee to accept re-employment with his or her former employer. The dismissed employee will be required to accept the offer of re-employment if the terms offered in situations where “the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious.” The determination of whether or not an employee will be required to return to work to mitigate is determined by reviewing the facts contextually and objectively on a case by case basis. The central issue is whether a “reasonable person” would accept the offer of re-employment. In practice, the obligation to accept re-employment is most likely to arise in the circumstances of a constructive dismissal, particularly if the constructive dismissal is the result of a corporate restructuring that did not single out the employee. If an employee has already resigned from his or her employment, an employer must ask the former employee to return to work if it intends to rely on this particular type of mitigation obligation to argue that the former employee failed to take reasonable steps to mitigate his or her damages by failing to continue working for the former employer.
Significantly, an employment contract that contains a termination clause that sets out a fixed notice period or a formula for calculating the notice period will not be subject to the duty to mitigate unless the employment contract explicitly states that the termination payments are subject to the duty to mitigate. The law in this respect was clarified in the summer of 2012 by the Ontario Court of Appeal in Bowes v. Goss Power Products Ltd.5 The practical impact of Bowes is momentous. A significant number of employees in Toronto and the rest of Ontario have employment contracts that contain termination clauses that are silent with respect to mitigation. Previously it was presumed that the severance or termination payments set out in these employment contracts were subject to the duty to mitigate. Bowes has inverted this presumption. As a result, employers whose employment contracts contain termination clauses should consult with an employment lawyer because their cost of terminating employees is now potentially significantly higher than before. An employee whose employer attempts to change the termination clause in their employment contract should also seek legal advice.
Similarly, if an employer terminates a fixed term employment contract prior to the end of the term the employer will be obligated to pay the employee to the end of the term, and that obligation will not be subject to mitigation unless the contract explicitly states that the employee is required to mitigate his or her damages.6
Post-termination settlement agreements that provide for a lump sum payment to the dismissed employee are also presumed not to be subject to the duty to mitigate.7 A dismissed employee who receives a lump sum payment and starts a new job during the notice period is not expected to return any of the lump sum payment to his former employer.
Similarly, any notice and severance payments made to an employee pursuant to the ESA are not subject to the duty to mitigate.
- Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402; ↩
- see Link v. Venture Steel Inc., 2010 ONCA 144 at para. 73; Paquette v TeraGo Networks Inc., 2015 ONSC 4189 at para. 45; ↩
- Furuheim v. Bechtel Canada Ltd.(1990), 30 C.C.E.L. 146 (Ont. C.A.); ↩
- Carter v. 1657593 Ontario Inc. (The Olde Angel Inn), 2015 ONCA 823 at para. 6; ↩
- Bowes v. Goss Power Products Ltd., 2012 ONCA 425; ↩
- Howard v. Benson Group Inc. (The Benson Group Inc.), 2016 ONCA 256 at para. 44; ↩
- Wronko v. Western Inventory Service Ltd., 2008 ONCA 479 at para. 4; ↩