Most employers are aware that any dismissed employee has a duty to mitigate. Usually, this duty arises in the determination of an appropriate severance payment to an employee. Where an employee contests the severance, the duty to mitigate will undoubtedly apply as part of the matrix of calculations to be determined.
However, a recent case raised an issue that is seldom considered by employers and employees alike. Where an employment contract expressly determines the appropriate amount of severance, is there still a duty to mitigate?
In the case of Bowes v. Goss Power Products Limited 2011 ONSC 4445, the Ontario Superior Court of Justice concluded the duty to mitigate remains.
After a review of the case law on the matter, the Court concluded that the duty to mitigate is not an implied term of an employment contract but rather a free-standing principle that applies in the calculation of damages.
The Court’s reasoning appeared to be that, as there was no implied term in the contract regarding mitigation, there was no direct relationship with the contractually preset damages. (Those damages took the form of a pre-negotiated severance amount.) In light of this reasoning, the Court reaffirmed the conclusion that mitigation would always apply unless it was the subject of a distinct term in an employment contract.
This is an important point for employers and dismissed employees. For employees, it may be worthwhile to attempt to negotiate a mitigation provision into a contract rather than being faced with the above.
For employers, this legal principle represents a significant opportunity to realize substantial savings when terminating an employee. By paying salary continuance (rather than a lump sum) and following the employee’s attempts to find new employment, an employer could find itself able to significantly limit its severance obligations should the employee be successful in finding work. This approach could counteract even long severance periods, resulting in significant savings.
A corollary to this reasoning (though not explicitly discussed in the decision) is that, if mitigation continues to apply in the face of a predetermined severance period, then it is not only the effect of mitigation (i.e., offset any future moneys earned) that will apply, but also the duties associated with it (i.e., the obligation to look for new work).
Therefore, where an employee is dismissed with a preset severance period, the employer may be within its rights to insist that the employee make reasonable mitigation efforts rather than allowing the severance period to run its course.
Andrew D. Taillon
Cox & Palmer
Barrister & Solicitor