Mitigation of Wrongful Dismissal Damages
The old adage “do not rest on your laurels” carries significant relevance in the world of Ontario employment, specifically when it comes to an very important (but usually overlooked) concept: an employee’s mitigation of wrongful dismissal damages. Basically, employment law requires all employees not to get lazy or complacent after losing their job to keep their losses to a minimum. The reason for this is simple: even if an employer commits a breach of contract, such as a wrongful dismissal or constructive dismissal, the employee has to do what they can to reduce the financial impact of losing their job.
In practice, the legal concept of mitigation means employees must take steps to search for new employment. The consequences of an employer proving the employee did not fulfill their mitigation obligation are significant. Specifically, because of the duty to mitigate, an employer is not required to pay for losses (e.g., income) that the employee could have avoid with reasonable efforts.
Understanding an Employer’s Obligations in a Termination of Employment
In the typical situation where an employer fires an employee “without just cause” (justification based on misconduct), it is required to provide an employee with “reasonable notice” of termination under common law (i.e., a period of time an employee should be given between the notification of dismissal and end of employment.
Depending on the circumstances, reasonable notice may be very lengthy – as much as a month (or more) for each year of service. If you, as an employer, fail to provide reasonable notice, you may be required to pay the employee an amount equal to the wages plus benefits the employee would have earned during this period of time. In providing reasonable notice, an employer can choose to provide either working notice (the employee works until their last day), or pay in lieu of notice (payment as a substitute for receiving adequate notice when an employee is dismissed without cause).
As an alternative, the primary way for employers to reduce their financial obligations is to have an employee sign an employment contract that includes a valid termination clause. In done properly, an employer may be able to reduce the costs and uncertainty of relying on a court in a wrongful dismissal lawsuit (or as part of lengthy severance package negotiations) to determine what constitutes reasonable notice.
How to Prove an Employee’s Failure to Mitigate their Damages from Wrongful Dismissal
The onus of proving an employee’s failure of mitigation rests on the employer, since it is a defence tactic that could help them reduce their financial obligations to an employee from a wrongful dismissal or constructive dismissal. As noted by the Supreme Court of Canada a 2012 case called Southcott Estates Inc. v. Toronto Catholic District School Board, a person sued for breach of contract has the burden of proving:
“both that the plaintiff has failed to make reasonable efforts to mitigate and that mitigation was possible.”
As the court also pointed out:
“a plaintiff who does take reasonable efforts to mitigate loss may recover, as damages, the costs and expenses incurred in taking those reasonable steps, provided that the costs and expenses are reasonable and were truly incurred in mitigate of damages.”
For example, in the area of employment law, this can include an employee’s costs in registering for career outplacement services or attending job interviews.
Consequences of Employees Failure to Mitigation of Wrongful Dismissal Damages
If an employer is able to establish that the employee failed to mitigate their losses following a wrongful dismissal, it could result in a court reducing (or eliminating) the length of reasonable notice period (or pay in lieu of notice) owed to the employee. For example, if an employer can prove the employee did not make reasonable efforts to look for comparable new employment during their reasonable notice period, a court could reduce the employee’s damages for wrongful dismissal (or severance pay).
Similarly, if the employee is successful in finding new employment before the end of their reasonable notice period, a court would likely reduce how much severance package the employee the employer is required to pay, or otherwise reduce the employee’s earnings from their new job from the wrongful dismissal award (but not from the employee’s minimum statutory entitlements under the Ontario Employment Standard Act, 2000).
The employer’s ability to avoid paying an employee their full severance package may seem unfair, but from a practical standpoint, the employee is also in a much better position that she would have been in had she gone to court to attempt to recoup her losses (severance pay) as part of a wrongful dismissal case.
As a result, this means that employees must undertake reasonable job searches or risk being awarded a shorter reasonable notice period by a court in a wrongful dismissal case (or an employer digging in their heels to justify a smaller severance package).
Contact Employment Lawyer
After a wrongful dismissal, employees are legally required to search for new employment to reduce the financial impact of losing their job. This duty to mitigate is an important factor in any wrongful dismissal case (or severance package negotiation) in employment disputes. From an employer’s perspective, it is a strategic consideration when responding to either a wrongful dismissal lawsuit, or preparing an employee’s severance package. From an employee’s perspective, it is important to understand your obligations and, with the help of an experienced employment lawyer, act quickly to pursue your legal entitlements, such as reviewing your severance package to understand your best options and steps moving forward.
In any case, whether you are an employee who was recently terminated from your employment, or an employer who is unsure how to handle a wrongful dismissal matter, please call our employment law firm, Bune Law, at 647-822-5492 for guidance from an experienced employment lawyer.
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