Court of Appeal confirms that every dollar earned in a new job must be deducted from wrongful dismissal damages
Exclusive to Canadian HR Reporter from Rudner Law.
When dealing with wrongful dismissal claims, navigating the duty to mitigate can sometimes feel like a bumpy ride. Just when you think you understand the rules of the road, a court decision comes along and forces everyone to hit the brakes.
Thankfully, a recent decision from the Court of Appeal has cleared up a lingering debate about whether income from a lesser job actually counts towards an employee's mitigation earnings.
The court’s decision confirms that every dollar of employment income earned during an employee’s notice period is deducted from any notice award, bringing case law back in line with fundamental legal principles.
The ‘Brake-down’
The duty to mitigate requires an employee who has been wrongfully dismissed to make reasonable efforts to reduce their lost employment income by finding comparable work. Employees are not expected to make the job hunt their full-time occupation, nor are they expected to accept just any job; a lab technician, for example, is not required to accept a position as a bartender.
The rule, however, is that once an employee does accept a new job, whether it is comparable or not, every dollar they earn during their notice period gets deducted from their final notice award.
In Ontario, some confusion crept into long-established rule due to the Court of Appeal's decision in Brake v. PJ-M2R Restaurant Inc. In Brake, its concurring opinion suggested that because the duty to mitigate does not compel employees to accept inferior, or non-comparable, employment, any income they do earn from an “inferior” job logically should not be deductible from a final notice award.
Since this reasoning was found in a concurring opinion rather than the majority decision, it did not constitute law. Nonetheless, it still created confusion and muddied previously clear rules about employment income earned during the notice period, leading to conflicting opinions.
Brake was certainly controversial, and many in the employment bar criticized it for going against fundamental legal principles.
Williamson clears the air
The Court of Appeal recently provided some much-needed clarity, confirming that the concurring opinion in Brake is not the law. In Williamson v. Brandt Tractor Inc., the trial judge applied the controversial logic from Brake and found that the employee's income should not be deducted from their notice award because it stemmed from a "lower-paying or ranking position". The employer appealed the decision.
The Court of Appeal allowed the employer’s appeal on this issue, confirming that the trial judge erred by relying on the concurring opinion in Brake, which is not the law as it is not the majority decision. The court clearly stated that the majority decision in Brake represents the law with respect to mitigation and employment income. That is that all employment income earned during the notice period must be deducted to offset compensation, regardless of whether the job is "inferior".
Consequently, the court ordered that the $32,881 the employee earned during his 17-month notice period be deducted from the damages awarded at trial.
However, it wasn't a total victory for the employer. Interestingly, the employer lost on its two other grounds of appeal:
- failing to prove just cause
- failing to prove that he failed to mitigate.
Therefore, the employer was slapped with a $15,000 costs award as the employee was technically successful in the appeal. That said, the employment bar certainly appreciates the court’s decision on the mitigation income issue.
Pith and substance
Williamson is a highly welcome clarification from the Court of Appeal, confirming that all employment income offsets notice damages. For the law nerds out there, it also reminds us that while concurring opinions may be compelling, they are not the law.
Williamson also serves as a stark reminder of the crucial cost-benefit analysis required when litigating employment disputes. While the employer successfully got the $32,881 deducted from the damages award, it had to pay $15,000 in costs to the employee, plus the legal costs of pursuing the appeal itself. This echoes the lessons from Hill v. Canyon Dental Center, where an employer successfully proved failure to mitigate at trial, but the victory only saved them about $2,000 in damages. The costs of “winning” that battle far exceeded the “savings”.
Often, spending the money to aggressively pursue failure to mitigate arguments in court is simply not worth it for employers. Williamson reminds us that there is far more strategic value in proactively helping the employee mitigate. Forwarding opportunities for open positions, offering outplacement counseling, or even offering dismissed employees their jobs back (if appropriate) can be highly effective.
Before rolling the dice in court, it is always advisable for employers to work with HR counsel to engage in a thorough cost-benefit analysis. Strategic legal advice is essential for properly handling mitigation matters, managing litigation risks, and keeping your overall costs down.
David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
