Wrongful dismissal: Company ordered to pay damages for 21.5 months' pay in lieu of notice, $88,509 plus costs
“When an employer is conducting a termination, it’s advisable to provide the employee with a reference letter or assistance in a job search - if they're able to show that the employee didn't avail themselves of all the support it provided, the employer is going to be able to point to that as evidence to satisfy the test that the employee didn't take reasonable steps to mitigate.”
So says employment lawyer Jeff Rochwerg of Turnpenney Milne in Toronto, after the Ontario Court of Appeal dismissed an employer’s appeal asserting a failure to mitigate and overturned a deduction in the worker’s reasonable notice period.
Koolatron is a manufacturer of thermoelectric and refrigeration products based in Brantford, Ont. The company hired the worker around 1989.
In 2018, Koolatron terminated the worker’s employment with 2.5 months’ notice, providing him with a letter of termination that explained shortage of work as the reason for dismissal. It also issued a record of employment (ROE) that cited the same reason.
However, the company held a retirement lunch for the worker and gave him a gift in recognition of his 29 years of service.
Search for comparable employment
The worker made some effort to search for another job, but he was unsuccessful. Koolatron told the worker that there might be some part-time employment with the company available, but the worker didn’t pursue the matter. According to the worker, he didn’t find any employment opportunities within a reasonable distance of his home.
The worker sued the company for wrongful dismissal and the trial judge found that the worker was entitled to 24 months’ notice, based on his years of service, position with Koolatron, and age.
However, the trial judge found that the worker’s efforts at mitigating his damages from his dismissal were inadequate, calling them “half-heartful at best.” This warranted a deduction of three months from the worker’s notice period, the trial judge said.
The trial judge ordered Koolatron to pay the worker damages for pay in lieu of 18.5 months’ notice, after the three months’ deduction for lack of mitigation and the 2.5 months’ notice of termination that the company had already provided. The total award, based on the worker’s monthly income taken from the worker’s calculation of lost income over a 30-month notice period divided by 30, was $70,603.08.
Koolatron appealed the decision on three grounds:
- the worker had voluntarily retired
- the trial judge didn’t reduce the notice period enough for the worker’s failure to mitigate
- the worker should have accepted part-time work the company offered during the notice period.
Dispute over mitigation
The worker filed a cross-appeal, arguing that the reduction of his notice entitlement for a failure to mitigate was unjustified on the basis that Koolatron didn’t prove that reasonable efforts would have resulted in him finding employment. He also pointed out what he claimed was an error in the calculation of his monthly income, as the trial judge used his calculation of lost income over a 30-month notice period that had already deducted the 2.5 months’ notice he had received, but the court still divided it by 30.
The Court of Appeal noted there was substantial evidence supporting the trial judge’s finding that the worker had been terminated without cause and didn’t voluntarily retire. Koolatron provided a written notice citing shortage of work and issued an ROE with no reference to retirement, so the company’s position that the worker retired – basically because it held a retirement lunch for him and gave him a gift - was “wishful thinking,” said the court.
“The Court of Appeal was able to dismiss the ground that it was a retirement pretty quickly, just on the basis that a written notice of termination was given citing a shortage of work,” says Rochwerg.” “Even if somebody has an exit party that's characterized as a retirement party, where the employer has explicitly given notice of termination, the decision has come from the employer - there's no suggestion that it was a mutual decision or the employee's decision.”
As for the three-month deduction of the notice period for a failure to mitigate, the court noted that Koolatron had the burden to prove a two-part test established in Lake v. La Presse, 2022 ONCA 742 – that the worker failed to take reasonable steps to mitigate and, if reasonable steps were taken, the worker would have found a comparable position.
While the trial judge found that the worker didn’t take reasonable steps to mitigate, the company didn’t provide any evidence of any specific jobs that were available to the worker. As a result, Koolatron didn’t meet the second part of its onus of proof, the court said, adding that the worker’s claim of no opportunities within a reasonable distance of his home wasn’t challenged.
The court not only dismissed Koolatron’s argument that a three-month deduction a for failure to mitigate wasn’t enough, but it determined that there was no basis for the three-month deduction in the first place due to the company’s failure to prove the full two-part test for lack of mitigation.
Two-part test for failure to mitigate
“[The Lake test] is a two-prong test where the employer has to show both that the employee failed to take reasonable steps and, if reasonable steps were taken, the employee would have secured a comparable position reasonably adopted to their abilities,” says Rochwerg.
“To succeed in that argument, the employer has to show that there was evidence of jobs available or it assisted the employee with some mitigation support - whether it's contacting their industry contacts or providing a reference letter – and [Koolatron] didn't do anything to show that had the worker taken certain steps, he would have mitigated his damages.”
The appeal court also agreed with the trial judge that the part-time employment Koolatron suggested was “somewhat vague and not well communicated” with no concrete offer. The worker wasn’t obligated to accept the position and his refusal wasn’t a failure to mitigate, the court said.
Based on its findings on mitigation, the court upheld the worker’s cross-appeal that no deduction of the notice period was warranted. It also agreed that the trial court’s calculation of his monthly wages was erroneous, and included the income earned during the 2.5-month notice period to the sum the worker lost during the entire notice period for the purposes of determining the average monthly income.
Koolatron was ordered to pay the worker damages for 21.5 months’ pay in lieu of notice - $88,509.05 plus costs.
Since the deduction of the worker’s notice period for lack of mitigation was a significant issue in the appeal – and was overturned – it’s crucial for employers to provide dismissed employees with mitigation supports if they intend on raising the mitigation issue, according to Rochwerg.
“There's no legal requirement to provide a reference letter, placement counselling, or job postings, but employers would be well advised to do so - especially on the job posting part - because unless they're able to show that there was a comparable position the employee ought to have applied for and didn't, it's going to be very difficult for them to make out the second branch of the Lake test,” he says. “Koolatron conceded there was no evidence of specific opportunities and, if there's no reasonable steps for the worker to take, it’s not going to be able to satisfy the second part of the test.”
