Wrongfully dismissed employees are entitled to damages in lieu of notice, but they have obligations too
Often employees believe upon termination they are legally entitled to lengthy periods of reasonable notice without any obligations and employee counsel will be quick to request same without factoring in the employee’s duty to mitigate. However, employees who are let go have a responsibility to try to improve their circumstances following dismissal, such as conducting reasonable searches for employment. It’s important for employers to understand this employee obligation if facing a wrongful dismissal suit.
A sometimes overlooked, but vitally important, aspect of a wrongful dismissal claim is the terminated employee’s duty to mitigate. Understanding the duty to mitigate — a terminated employee’s obligation to take positive steps to reduce the damages arising from their termination — is obviously important for both employees and employers, especially given the law can sometimes appear unsettled on issues related to mitigation.
The leading case on the duty to mitigate in wrongful dismissal cases is the 1975 Supreme Court of Canada decision Michaels v. Red Deer College. Chief Justice Laskin in Michaels held that:
• An employee is required to mitigate damages arising from wrongful dismissal
• The onus is on the employer to establish a failure to mitigate
• The onus requires the employer to establish that (a) the employee did not take reasonable steps to seek comparable employment, and (b) if the employee had done so, the employee could have procured such comparable employment.
The first two parts of the test are straightforward — there is an employee obligation and the burden of proof rests with the employer. However, the third part seems to give rise to a few corollary issues, which have recently been addressed — albeit sometimes inconsistently — by our courts.
The first issue is the distinction made between “should have” and “could have” procured comparable employment. There are a number of cases where the “should have” standard was applied — Fisher v. Hirtz, Yiu v. Canac Kitchens Ltd., and, most recently, Jonasson v. Nexen. This is the incorrect standard, which was clarified in Benjamin v. Cascades Canada ULC with reference to Cipman v. Kolumbia Inn Daycare Society, and the plain language used by Justice Laskin in Michaels:
“I agree that there are differences between establishing a ‘could have’ onus compared to a ‘would likely have.’ For the reasons that follow, however, I find that the Michaels test sets out a ‘could have’ onus and it is the proper approach to follow…While the onus is on the defendant to prove the plaintiff has not mitigated, it would be impossible for any employer to prove that the employee would have been able to secure a particular job.”
The next question that often arises is how far an employee must go to seek alternative employment and who is responsible for the ancillary expenses related to attempting to mitigate. Three of those issues have been recently addressed by our courts:
• Does pursuing retraining instead of employment constitute a failure to mitigate?
• Are employers responsible for the costs an employee incurs in attempting to mitigate?
• Are earnings from a lower position than previously held mitigation income?
Retraining as reasonable mitigation
The general proposition here is that the decision by a terminated employee to seek retraining is not, on its own, a failure to mitigate. As addressed in the Cascades decision, seeking retraining is only a failure to mitigate when the employer can show the employee (a) chose to retrain instead of seeking comparable positions; and (b) could have procured that comparable employment. Put succinctly by the court in Cascades:
“…a dismissed employee ought not to have a ‘free pass’ to change careers to enhance job security or obtain better hours, and then collect damages for notice simply because of dismissal. In those circumstances, an employer should not be required to fund training (through payment of reasonable notice) when the employee could have obtained comparable employment.”
In Cascades, the employee, less than one month into his reasonable notice period, chose not to apply for comparable positions with his prior employment as an unskilled labourer (which the employer proved to exist) and instead chose to seek retraining as a welder to become a skilled worker so he could control his own hours. Contrast that with decisions where retraining was found to have been reasonable — such as when an employee made considerable attempts over a significant period of time to find comparable work and eventually sought retraining (Kinsey v. SPX Canada Inc.), or an employer was unable to establish the availability of similar work (since they had the entire market covered in the area) and the employee sought retraining (Williamson v. Ritz Lutheran Villa) — and the distinction is clear. If an employee makes bona fide attempts to secure comparable employment or the employer cannot prove comparable employment exists in the marketplace, retraining may not constitute a failure to mitigate.
Mitigation expenses
It is clear that an employee must take active steps to mitigate her damages, but can an employer be responsible for the expenses an employee incurs in mitigating? This question was recently answered by the Court in Robinson v. H.J. Heinz Company of Canada LP. Prior to her constructive dismissal, the employee was induced to move from southwestern Ontario to Toronto. Following her termination, she accepted a lower-paying position in southwestern Ontario and was required to sell her home in Toronto as part of that relocation. While dismissed employees don’t ordinarily have the right to claim damages arising from lifestyle choices like moving to a different city, in this case the court noted that it was reasonably foreseeable that if the employer terminated this particular employee (given her prior residence), her damages would include the cost of relocating to her new place of employment. The employee was awarded $45,010.32 in relocation expenses for things like moving expenses, land transfer taxes, legal fees, real estate fees and mortgage penalties. It is doubtful that the employer would have been liable for these expenses had the employee moved unrelated to her mitigation attempts, but because she did mitigate and because she lived in the area prior to her relocation by the company, the court found such expenses to be warranted and recoverable.
Earnings from lower-paying employment
An employer is generally entitled to a deduction for income earned by the terminated employee from other sources of income during the common law notice period. No deduction is appropriate during the statutory minimum period. However, under certain circumstances, courts have the discretion not to deduct employment income. Based upon the Ontario Court of Appeal’s decision in Brake v. PJ-M2R Restaurant Inc., income that is supplementary — could have been earned by the employee if she remained employed with her former employer — will likely not count as mitigation income. In the concurring decision, Justice Feldman went even further and held that when an employee is forced to accept an inferior position because no comparable position is available, the amount earned is not mitigation income and not to be deducted from the reasonable notice award.
In most wrongful dismissal claims, mitigation will be a live issue and it’s clear from the above noted cases it’s not simply about whether the employee obtained a new job or not. Issues like mitigation expenses, what constitutes mitigation income, can an employee seek retraining, amongst a host of other issues, will also be in play to determine whether an employer has met the test set out in Michaels. What is clear is that an employee must do what is reasonable to minimize her losses — if she does not, her entitlement may be reduced. If the employee acts reasonably and is unable to secure comparable employment, she will not be found to have failed to mitigate and, in fact, she may have an additional claim for mitigation expenses against her former employer.
For more information see:
• Michaels v. Red Deer College, 1975 CarswellAlta 57 (S.C.C.).
• Fisher v. Hirtz, 2016 CarswellOnt 12103 (Ont. S.C.J.).
• Yiu v. Canac Kitchens Ltd., 2009 CarswellOnt 1164 (Ont. S.C.J.).
• Jonasson v. Nexen, 2018 CarswellAlta 1907 (Alta. Q.B.).
• Benjamin v. Cascades Canada ULC, 2017 CarswellOnt 6278 (Ont. S.C.J.).
• Cipman v. Kolumbia Inn Daycare Society, 2006 CarswellBC 3037 (B.C. S.C.).
• Kinsey v. SPX Canada Inc., 1994 CarswellBC 1144 (B.C. S.C.).
• Williamson v. Ritz Lutheran Villa, 2010 CarswellOnt 1877 (Ont. S.C.J.).
• Robinson v. H.J. Heinz Company of Canada LP, 2018 CarswellOnt 9278 (Ont. S.C.J.).
• Brake v. PJ-M2R Restaurant Inc., 2017 CarswellOnt 7619 (Ont. C.A.).
Alex Kowal is a legal advisor with e2r© in Toronto. He can be reached at (416) 867-9155 or [email protected].
