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Check your employment contracts

Employees terminated without cause not required to mitigate damages by seeking new employment unless notice clause in contract specifically says so

By Stuart Rudner

Regular readers will know I recommend to employers that every single employee have a signed, written contract of employment that addresses a number of issues including the amount of notice to be provided in the event of dismissal without cause.

A recent decision of the Ontario Court of Appeal has confirmed, however, that where such a clause exists, the employee will not be required to mitigate her damages by seeking new employment unless the clause specifically says so. As a result, I encourage employers to review their contracts and update them as necessary.

In Bowes v. Goss Power Products Ltd., the employment contract provided that Bowes would be entitled to six months of notice, or pay in lieu thereof, in the event he was dismissed on a without cause basis. There was no mention of mitigation, which is not unusual. When Bowes was dismissed, the company confirmed he would continue to be paid for a period of six months, but indicated in the dismissal letter he would be required to look for new work and advise the company of his mitigation efforts.

Within weeks of the dismissal, Bowes obtained new employment with comparable compensation. Goss Power, upon learning of his mitigation, cut off the salary payments and effectively provided only the statutory termination pay of three weeks. When no resolution could be reached, Bowes commenced a wrongful dismissal action.

At first instance, Justice Whittaker of the Ontario Superior Court of Justice found “there can be no doubt that the parties wished to provide for certainty on a variety of points addressed in the employment contract — including the length of the period of reasonable notice… This desire for certainty does not mean, however, that the parties agreed to relieve Bowes of his obligation to mitigate.”  

Justice Whittaker found in favour of the employer, but the matter was appealed to the Ontario Court of Appeal, which disagreed. Paraphrasing comments I have often made, Chief Justice Winkler wrote:

"Establishing a predetermined period of notice in the contract of employment has certain distinct advantages. Most notably, it provides certainty. From the employer’s perspective, it has the advantage of 'capping' the period of reasonable notice that a court might otherwise award in a suit for wrongful dismissal. Likewise, from the employee’s perspective, it ensures a guaranteed entitlement that may be greater than that which a court would award under common law. For both parties, predetermining the period of notice avoids the need for litigation to assess notice upon termination."

However, a unanimous Court of Appeal went on to find that in situations where an employment agreement specifies the amount of notice or pay in lieu to be provided, the duty to mitigate that would otherwise exist at common law is not implied. If the contract is otherwise silent, the employee will not have a duty to mitigate, and any income earned during the notice period will not be treated as mitigation earnings and deducted from the amount owed by the employer.

In light of this decision, I encourage all employers to review the contracts they are using. They should ensure the contract clearly states the amount of notice of dismissal to be provided, and also confirms the employee will have a duty to mitigate.  

Stuart Rudner is a partner in the Labour & Employment Law Group of Miller Thomson LLP, a national law firm. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at (905) 415-6767 or srudner@millerthomson.com. You can also follow him on Twitter @CanadianHRLaw and join his Canadian Employment Law Group on LinkedIn.

Stuart Rudner

Stuart Rudner is a founding partner of Rudner MacDonald LLP in Toronto. Follow him on Twitter @CanadianHRLaw. He can be reached at srudner@rudnermacdonald.com.
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