The facts
Mr. Bowes began his employment with Goss
Industries in 2007. His employment contract contained a termination
clause whereby he would receive a fixed amount of notice, or pay in
lieu of notice, if the employment was terminated without cause.
There was no mention of a duty to mitigate.
Goss Industries terminated Mr. Bowes' employment without cause
in 2011. He was entitled to six months pay in lieu of notice under
his employment contract. He found alternate employment two weeks
later with a similar salary and Goss Industries stopped paying his
salary continuance.
Mr. Bowes brought an application to the Ontario Superior Court of
Justice to determine whether he was owed the remainder of his
severance. The court found that Bowes was under a duty to reduce
his loss by finding alternate employment, even if the employment
contract contained a fixed severance clause. Since the contract did
not contain a waiver of mitigation, the court decided that Bowes
was not entitled to his salary continuance.
The Court Of Appeal's decision
Ontario's Court of Appeal disagreed with the
lower court, and reversed its decision. It is well settled that an
employee must take reasonable steps to secure alternate employment
in the event of termination to reduce his or her loss; however, the
court found that this rule does not apply where the parties have
contracted for a fixed amount of notice, or pay in lieu of
notice.
The court's rationale for its decision was that by agreeing to
fixed termination pay in the employment contract, the parties had
shown their intentions in the event of termination without notice.
Since this arrangement promotes certainty and stability between the
parties, the court decided that the possibility of post-employment
mitigation would be inconsistent with this objective.
The Court of Appeal provided an exception to this general
principle: where the employment contract provides a clear and
specific provision that states that an employer's obligation to
pay a fixed severance is subject to the employee's duty to
mitigate.
What this means for you
The Ontario Court of Appeal's decision
regarding mitigation in Bowes reflects a similar trend in
Alberta, British Columbia, and Nova Scotia. It is likely that
courts in other provinces will follow this principle and find that
fixed contractual termination payments are not subject to
mitigation, except where it is expressly provided in the employment
agreement.
As an employer, you should explicitly provide in the termination
clause of an employment contract that an employee is under a duty
to take reasonable steps to find alternate employment. This allows
you to cease termination payments in lieu of notice when an
employee finds a new job. Otherwise, courts will likely find in
favour of the employee and enforce the entirety of the
predetermined payments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.