What Is the Duty to Mitigate Owed By An Employee?

Former Employees Have a Duty to Mitigate By Taking Steps to Reduce the Losses That Occur By Termination of Employment. The Duty Applies to Employees Whether the Termination was a Wrongful Dismissal or Constructive Dismissal.

Employment Termination Notice Including Notice Requiring Efforts to Mitigate Income Losses The law in Canada often requires a harmed person to 'mitigate'.  Simply stated, the harmed person must act reasonably in a genuine effort to reduce the extent of the harm.  In the employment law context, this 'duty to mitigate' is imposed on the wrongfully terminated employee.  Frustratingly to many employees who misperceive that some form of punishment should be inflicted upon the employer, the employee is unable to simply sit around doing nothing all the while blaming the past employer for the employee's unemployed situation; and accordingly, when an employee sues an employer for terminating without proper notice or termination pay-in-lieu of proper notice, the employer often points back alleging that the employee failed to mitigate.  The requirement to make a reasonable effort to obtain new employment was recently well articulated in the case of Clark v. Township of Otonabee-South Monaghan, 2019 ONSC 6978 wherein it was said:

[18]  The defendant argues that the plaintiff has failed to properly mitigate his damages, citing the facts that he has made no applications for employment, has not sought the assistance of a professional employment agency, and has limited the scope of his search to “grader operator”.

[19]  The law relating to an employee’s duty to mitigate damages is described as follows in Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (CanLII), [2008] 1 S.C.R. 661, at paras. 99f:

In Red Deer College, at p. 332, the Court held that the burden of proving that an employee has failed to mitigate his or her damages lies with the employer. Laskin C.J. cited Cheshire and Fifoot's The Law of Contract (8th ed. 1972), to explain the nature of the burden:

the burden which lies on the defendant of proving that the plaintiff has failed in his duty of mitigation is by no means a light one, for this is a case where a party already in breach of contract demands positive action from one who is often innocent of blame. [p. 599]

As this passage suggests, the burden of proof is onerous. This is consistent with the approach to [page705] mitigation as a principle in damages more generally. As Waddams observed: "In case of doubt, the plaintiff will usually receive the benefit, because it does not lie in the mouth of the defendant to be over-critical of good faith attempts by the plaintiff to avoid difficulty caused by the defendant's wrong" (15.140).

An employer alleging a failure to mitigate must prove two things: that the employee did not make a reasonable effort to find new work and that had the employee done so, he or she would likely have been able to obtain comparable alternative employment. In other words: that the loss was avoidable.

[20]  While I agree that the plaintiff’s efforts at mitigation seem, at least on the surface, to be somewhat lacklustre, this may very well be a factor of the limited availability of comparable jobs where he lives, and has worked. In any event, there is no evidence to suggest that the plaintiff could have obtained comparable alternative employment had he put more effort into the search.

[21]  In the result, I find that the defendant has failed to satisfy its onus of proving that the plaintiff has failed in his duty of mitigation.

A Helpful Guide to Understanding the Requirement to Minimize Loss of Income

When a wrongful dismissal occurs, that is when an employer fails to provide reasonable notice of termination or proper pay-in-lieu of notice, an employee is generally granted some time to get over the initial shock of unemployment as well as to prepare and implement a job seeking strategy.  A few weeks to a few months, depending on the situation, as a grieving period is generally granted by the courts.  However, if an employee fails to seek new employment within a reasonable period of time, or fails to keep proof of the effort, the employer may become excused from liability.

Mitigating With the Same Employer 

Surprising, the law sometimes requires the dismissed employee to mitigate by staying on with the very employer that is terminating the employee.  This requirement, where the dismissing employer makes a clear offer for the employee to work out the notice period, or a portion of, was stated in Evans v. Teamsters Local Union No.  31[2008] 1 S.C.R.  661 at 29 to 31 by the Supreme Court.  While unusual that an employer desires a dismissed employee to stay on and work out the notice period, where the employee is at low risk to commit sabotage, breach confidentiality, or cause other difficulties, the employer might make the offer to stay on.  If there is nothing humiliating or embarassing or unduly oppressive or indignifying, the employee may have the duty to stay on and work out the notice period. 

As a means of protecting employees from employers that may allege that an employee failed to accept a notice period position, the Ontario Court of Appeal stated in Farwell v. Citair (General Coach Canada)2014 ONCA 177 at paragraph 20 that the employer must offer a, "...  clear opportunity ..." to mitigate.  Incredulously, if the employee was constructively terminated whereas the employer unilaterally made substantial changes to the employee's position and the employee turned down this new 'alternate position' and advising that the employee is deeming the change as a constructive termination, the employer is required to retable the offer.  Essentially, in such a situation, the employer must make the offer twice - the first time when offering the employee the 'alternate employment position' that was turned down and deemed a constructive termination and then again for the second time as a 'mitigation position'.  It is important to note that the offer of the 'mitigation position' must happen after the employee declines the 'alternate employment position' that triggered the constructive termination situation.  While seemingly odd that the employer must offer the position twice, this actually makes logical legal sense, even if not common sense, simply because the duty to mitigate - and an opportunity to mitigate - fails to exist until after termination occurs.  Accordingly, if the event that culminates in termination is the offer of an 'alternate employment position' consistent with a constructive termination, then this offer was originally in the context of employment rather than mitigation.  If the employer wishes to rely on a 'failure to mitigate' defence, the employer is required to clearly re-offer the position in the context of a chance to mitigate; as again, the duty to mitigate and a chance to mitigate are unable to exist until after termination first occurs.  This requirement was further explained and clarified in the case of Fillmore v Hercules SLR Inc., 2016 ONSC 4686 at paragraph 28 where it was said that a failure to accept a lesser position, essentially a demotion, is not a failure to mitigate.  Specifically, it was said:

[28]  The Farwell decision obliges the defendant to offer the plaintiff the “clear opportunity to work out the notice period” after the plaintiff refuses to accept the new, lesser position.  I do not view Hubley’s email as being consistent with Farwell.  Hubley’s email seems to keep both the Severance Offer and the New Offer of Employment on the table even though the plaintiff’s employment as Director (Purchasing) was “eliminated” the previous day.  The New Offer of Employment does not trigger the duty to mitigate as discussed in Evans and particularized in Farwell; rather, it was an offer to accept a demotion. 

Employment Insurance

Historically, much confusion appears whereas it seems that monies received by the employee as income from employment insurance ("EI") during the notice period was commonly deducted and applied as a form of income loss mitigation; however, as the Court of Appeal reminded in Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402, such monies are intended as a benefit and are excluded from calculation as mitigation monies.  Specifically, the Court of Appeal said:

[101]  In my view, the law is clear: EI benefits are not to be deducted from damages awarded for wrongful dismissal.  Accordingly, the damages award was not to be reduced by the $7,150 of EI benefits that Ms. Brake received in 2013.

[102]  The Supreme Court addressed the deductibility of EI benefits from wrongful dismissal damages in Jack Cewe Ltd. v. Jorgenson, 1980 CanLII 177 (SCC), [1980] 1 S.C.R. 812.  In that case, Mr. Jorgenson successfully sued Jack Cewe Ltd. (the “company”) for wrongful dismissal.  The trial judge awarded damages equivalent to a year’s salary.  From that amount, the trial judge deducted, among other things, the EI benefits[2] that Mr. Jorgenson had received during the twelve-month notice period.  The British Columbia Court of Appeal held that the EI benefits should not be deducted.  The company appealed to the Supreme Court and argued that EI benefits should be deducted in proportion to the company’s contribution. Its appeal was dismissed.

[103]  At p. 818 of Cewe, Pigeon J., writing for the Court, stated that he found the company’s position “untenable”.  He explained:

The payment of [EI] contributions by the employer was an obligation incurred by reason of [Mr. Jorgenson’s] employment, therefore, to the extent that the payment of those contributions resulted in the provision of [EI] benefits, these are a consequence of the contract of employment and, consequently, cannot be deducted from damages for wrongful dismissal.

[104]  This court expressed a similar view in Peck v. Levesque Plywood Ltd. (1979), 1979 CanLII 2055 (ON CA), 27 O.R. (2d) 108.  In Peck, after awarding an employee damages for wrongful dismissal, the trial judge reduced the award by the amount of EI benefits that the employee received during the notice period.  This court allowed the employee’s cross-appeal, holding that the damages award should not be reduced by the amount of the EI benefits.

[105]  Justice Dubin (as he then was), writing for this court, thoroughly canvassed the jurisprudence from across Canada on the question of whether there should be a deduction of amounts received by way of EI from a damages award for wrongful dismissal. At p. 112 of Peck, he concluded that they are not to be deducted since the employer ought not to profit from the benefits payable to the employee.  He stated:

It is to be observed that as a result of the [employer] breaching its contract of employment with the [employee], the [employee] was required to use up at least part of his [EI] benefits.  It would be inconsistent to have that amount taken into account for the benefit of the employer who, by its breach of contract, compelled the employee to resort to his [EI] benefits.

Statutory Entitlements

Additionally, the Court of Appeal in Brake also stated that monies earned during a statutory notice period, such as income from a new job during the period of notice prescribed by the Employment Standards Act, 2000, S.O. 2000, Chapter 41 are excluded from mitigation calculations whereas it was said:

[111]  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 the Appellant terminated her employment. Therefore, the income that Ms. Brake earned during her statutory entitlement period is not subject to deduction as “mitigation income”. In reaching this view, I adopt the reasons of the Divisional Court in Boland v. APV Canada Inc. (2005), 2005 CanLII 3384 (ON SCDC), 250 D.L.R. (4th) 376.

Summary Comment

When an employee is dismissed and brings a wrongful dismissal case seeking compensation for insufficient notice or pay-in-lieu of notice, the employee is required to make a reasonable effort to minimize losses by taking reasonable steps to a new job (substitute employment).  If the employee unreasonably delays the search for a replacement position, the compensation due to the employee may be reduced.  While the employee bears the duty to seek new work, the employee is allowed a reasonable period of time to get over the initial shock of unemployment.  Of special note, it is the employer that bears the burden to prove that the employee failed to mitigate which includes the burden to prove that an opportunity to obtain a suitably comparable position was available.  Of further interest, in some situations, the employee may have a duty to mitigate with the employer that is terminating the employee.

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