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Important decision regarding mitigation of damages following termination

mitigationThe Ontario Court of Appeal, in Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402 (CanLII), recently clarified the law of mitigation.

The duty to mitigate is an employment law principle that requires employees who are terminated without reasonable notice (i.e. a wrongful dismissal) to look for a new job. If a new job is found, any monies earned with the new employer reduces the damages that can be recovered from the employee’s former employer as a result of the wrongful dismissal.

In Brake v. PJ-M2R, the court made a decision favourable for employees vis-a-vis mitigation, holding that mitigation income may not be deductible in certain circumstances; namely:

  1. income earned during the statutory notice period;
  2. any income paid by another employer that the dismissed employee worked for simultaneously;
  3. where a wrongfully dismissed employee is effectively forced to accept a much inferior position.

Background

Ms. Brake started working at a McDonald’s restaurant in 1986 in Newfoundland. In 1999, she was hired as Restaurant Manager by PJ-M2R at its Ottawa area McDonald’s restaurants. Upon hiring Ms. Brake, PJ-M2R explicitly recognized 7 years of her seniority from the McDonald’s in Newfoundland.

Thirteen years later, in April 2012, PJ-M2R’s owner summoned Ms. Brake to a performance review. Ms. Brake was rated as “needs improvement” and placed in PJ-M2R’s progressive discipline program.

In August 2012, PJ-M2R’s owner met with Ms. Brake and told her that she had failed the progressive discipline program and that she had a choice between a demotion to First Assistant or termination. The salary as a First Assistant would have been the same as that which she had been receiving as a Restaurant Manager but the benefits would be inferior.

Ms. Brake refused the demotion. She left the meeting and never returned. Subsequently, Ms. Brake sued for constructive dismissal.

In the interim, Ms. Brake worked at Sobey’s as a cashier (where she had worked part-time simultaneously with PJ-M2R, as permitted by PJ-M2R), and later Tim Hortons and Home Depot in low level positions.

Ms. Brake’s claim for constructive dismissal succeeds

The trial court found that when PJ-M2R offered Ms. Brake the non-supervisory position as First Assistant, with “meaningfully inferior” benefits, it unilaterally made a substantial or fundamental change to her employment contract. In so doing, it had constructively dismissed her.

In the result, Ms. Burke was awarded 20 months’ notice, with no monies subtracted for mitigation for the funds earned at Sobeys, Tim Hortons and Home Depot.

PJ-M2R appeals the trial court’s decision

Issue 1 – Refusal to accept continued employment

On appeal, PJ-M2R argued that if Ms. Brake was constructively dismissed, she was obliged to accept the demotion to First Assistant and by failing to do so, she breached her obligation to mitigate her damages. The Court of Appeal, however, did not agree. The court sided with the trial judge, noting that it was “perfectly understandable” that Ms. Brake would have found working under a young person whom she had trained to be humiliating. No reasonable person would have accepted such an embarrassment and returned to work.

Issue 2 – Notice period

PJ-M2R then argued that trial judge’s notice award – 20 months – was too high. PJ-M2R argued that Ms. Brake only had 13 years’ experience, and that 20 months was not within the appropriate range for that amount of seniority.

Nonetheless, the court quickly dismissed this ground of appeal too, noting that PJ-M2R had signed a contract upon hiring Ms. Brake explicitly recognizing 7 years of experience from her employment with the McDonald’s in Newfoundland, resulting in Ms. Brake having the equivalent of 20 years of employment with PJ-M2R. Accordingly, the court found that because Ms. Brake actually had 20 years of service as a restaurant manager, a notice period of 20 months would be within the acceptable range.

Issue 3 – Mitigation

The court next considered whether the trial judge made an error in failing to reduce Ms. Brake’s damages award by the amounts that she received during the notice period from Sobeys, Tim Hortons and Home Depot. In the result, the court found that the trial judge was correct not to reduce Ms. Brakes’s damages because they were not “amounts received in mitigation of loss”.

When Ms. Brake’s employment was constructively dismissed, she was entitled to two types of compensation – termination and severance pay under the Employment Standards Act (“statutory entitlements”) and common law damages for wrongful dismissal.

First and foremost, the court reiterated that statutory entitlements are not damages.  Ms. Brake was entitled to receive her statutory entitlements even if she secured a new full-time job the day after PJ-M2R terminated her employment. Therefore, the income that Ms. Brake earned during her statutory entitlement period was not subject to deduction as “mitigation income”. This meant that 34 weeks’ (the statutory entitlements) of Ms. Brake’s income following dismissal should not have been deducted for mitigation purposes. This period all but covered the monies Ms. Brake earned at Tim Hortons.

Second, the court found that Ms. Brake’s income from Sobey’s was not deductible mitigation income because Ms. Brake had worked there while working full-time for PJ-M2R. The court held that an employer is normally entitled to a deduction for income earned by the terminated employee from other sources during the common law reasonable notice period. However, for income earned by the employee after termination to be deductible from damages, “the performance in mitigation and that provided or contemplated under the original contract must be mutually exclusive, and the mitigation, in that sense, is a substitute for the other.”

Thus, this case stands for the important proposition that if an employee has committed himself to full-time employment with one employer, but his employer allows for simultaneous employment with another employer, and the first employer terminates him without reasonable notice, any income from the second employer that he could have earned while continuing with the first is not deductible from his damages.

Finally, the court declined to deduct the Home Depot income (if there was any following the statutory notice period) that Ms. Brake earned during the notice period from her damages for wrongful dismissal because this job was not comparable, and she was not required to accept it – she only accepted it because she could not afford not to – it was necessity income, not mitigation income.

The court thus held that if a wrongfully dismissed employee can only find a position that is not comparable, she is permitted to turn it down, but if she takes the job, the amount she earns is not deducted as mitigation income.

Summary

The most important employment law principles gained from this case are as follows:

  1. Employers will not be permitted to deduct terminated employees’ income earned during the statutory notice period; and
  2. Employers will not be permitted to deduct terminated employees’ income earned from employment that was, at one point, simultaneous with the terminating employer, so long as that employer permitted such simultaneous employment; and
  3. Employers will not be permitted to deduct terminated employees’ income from employment that is not comparable because it was not accepted in mitigation of damages but rather out of need.

Jeff Dutton

Employment Lawyer at Dutton Employment Law
Jeff is a leading employment lawyer in Toronto. He represents both individual employees and management in all matters. Prior to founding Dutton Employment Law, Jeff was a prosecutor for the Ministry of Labour. He has been successful at the Ontario Labour Relations Board, Ontario Court of Justice and the Ontario Superior Court. Jeff is a frequent lecturer on employment law matters and has been widely published in newspapers and trade journals. Read more.
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