Duty to Mitigate after Termination of Employment |
Under Ontario employment law, an employee who is “wrongfully dismissed” – either because they were improperly fired “for cause” with no notice or severance compensation, or were not given the correct amount of notice of termination or severance compensation – has a “duty to mitigate” the financial losses resulting from the loss of their job. What does mitigation mean?
Put simply, an employee’s duty to mitigate requires her to take reasonable steps to find new, comparable employment to replace her lost job. As one court described it, the duty to mitigate is not an obligation owed by a dismissed employee to the former employer to act in the employer’s interests (by reducing the employer’s severance payments to the employee). Rather, it requires the employee to:
“take such steps as a reasonable person in the dismissed employee’s position would take in his own interests – to maintain his income and his position in his industry, trade or profession.”
While that would seem like “common sense,” it also has an important role when it comes to an employee’s entitlements to a severance package in a wrongful dismissal claim. If an employer can prove the employee made no efforts (or did not do enough) to reduce the financial impact of losing their job, it could reduce the amount of severance compensation the employer must pay.
Reasonable Notice (Severance) and the Duty to Mitigate
Under Canadian employment law, an employer can only terminate an employment contract without cause (i.e., fire an employee from their job) if it first gives reasonable advance notice of the dismissal. Generally, the only exceptions are: (i) if the employment is terminated “for cause” (serious intentional misconduct); or (ii) if the employment contract has a predefined expiry date (see discussion below about “fixed-term employment contracts,” below).
The purpose of reasonable notice of termination of employment is to provide the employee with a fair opportunity to look for new employment (and reduce the financial impact of losing their job).
How much reasonable notice does the employer have to provide, in terms of days, weeks or months?
Unless the employer and employee have agreed on a termination clause that legally provides the employee with at least the statutory minimums, the courts consider the following factors in determining how much reasonable notice of termination the employer must provide (each of these factors is thought to impact how long it could take an employee to find a job similar to the one they lost):
- The character of employment
- The length of employment
- The age of the employee at termination
- The availability of similar employment having regard to the experience, training and qualifications of the employee
- Disability (if applicable)
- Pregnancy (if applicable)
- Many other factors
Generally, the courts provide a longer notice period (severance package) older employees, employees who are highly-skilled, management or specialized, and long-term employees.
Generally, an employer can elect whether to provide the employee with “working notice” (they work until their final day of employment), or whether to end the working relationship immediately and giving the employee severance pay compensation equivalent to the notice period that (called “pay in in lieu of notice”).
What is a “Wrongful” Dismissal in Ontario Employment Law?
Whether an employee’s termination of employment is “wrongful” results from an employer’s failure to give prior reasonable notice of termination – not whether it was “wrong” or “fair” to fire the employee.
Impact of New Employment on Severance Pay Compensation
What if the employee does obtain new employment – what is the impact on severance compensation?
In that case, the general rule is that any income earned by the dismissed employee from new employment during the “notice period” is deducted from their severance compensation. However, there are a few important exceptions.
First, for the duty to mitigate to apply in reducing an employee’s severance compensation, the new job generally has to be comparable (similar) to the previous job lost. So, if the wrongfully dismissed employee obtains a new job that is meaningfully inferior to the one lost, they are still entitled to their full reasonable notice or severance package (e.g., going from a managerial position to a cashier position).
“where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the income he or she earns in that position is not mitigation of damages and need not be deducted.”
Second, mitigation income is not deductible if it is earned during the statutory notice period under the Employment Standards Act, 2000 (provincially-regulated employees) or the Canada Labour Code (federally-regulated employees). That is, mitigation income only applies to reduce severance if it is earned during the employee’s common law reasonable notice period.
Third, this mitigation rule will typically not apply to income that the employee would have received regardless of being dismissed. For instance, if an employee earns $10,000 during their notice period from a different part-time job they continued to work in simultaneously while employed with the former employer, it would not reduce their full severance compensation.
Re-Employment and Duty to Mitigate
In some cases, a dismissed employee may be required to return to work for their former employer in order to mitigate the loss of income they suffered as a result of dismissal (including in a constructive dismissal claim). However, there are some cases where an employee may be able to justify not accepting re-employment with the same employer, which will depend on the specific facts of each case:
“The employee is not obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation …it is extremely important that the non-tangible elements of the situation — including work atmosphere, stigma and loss of dignity, as well as nature and conditions of employment, the tangible elements — be included in the evaluation.”
It is important to note that it is the employer’s burden of providing whether a dismissed employee has failed to make reasonable efforts to find new work.
If the employer offers the employee a chance to mitigate their loss of income by returning to work, the central issue is whether a reasonable person would accept such an opportunity. Some of the facts a court will consider when determining whether an employee should accept re-employment with the same employer include:
- whether the employer’s offer of re-employment was made while the employee was still working for the employer, or only after he or she had already left
- whether or not the employee has already sued the employer
- whether the salary offered is the same
- the history and nature of the employment
- whether the working conditions are not substantially different
- whether the work is demeaning
- whether the personal relationships involved are not acrimonious
How does the Duty to Mitigate Apply in a Fixed-Term Employment Contract?
Unlike indefinite employment relationships where a termination clause will govern, in a fixed-term employment contract, both the employer and employee know exactly when the employment will end. This is because the employment contract will say the length of the job the employee will be performing with the company. For example, a fixed-term employment contract may something to the effect of:
Term of Employment
Your employment shall commence on DATE and end on DATE, unless terminated earlier in accordance with the termination provision set out below.
In such cases, since the employee knows exactly when their last day of work will be, they are deemed to have the sufficient amount of prior notice of termination to allow them to begin searching for new employment. As a result, they are generally not entitled to a severance package.
In other words, in a fixed-term employment contract, an employee generally has no duty to mitigate (unless the employment contract contains such requirement). And if the employer terminates the employee’s job before it was scheduled to end, it must pay the employee the balance of the term remaining.
Employment Insurance Benefits and the Duty to Mitigate
Similar to an employee’s duty to mitigate their losses when dismissed by their employer, an employee receiving Employment Insurance (EI) regular benefits is responsible for conducting a reasonable job search as a condition of receiving payments. This also requires employees to keep tracking job search activities and accepting any offer of suitable employment. What is “suitable employment” is determined depending on each person’s case:
- Personal Circumstances
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- whether the employee has any health and physical capabilities that affect the type of work he/she is able to perform
- the required commute time of the new job compared with previous commute and the employee’s access to a vehicle or public transportation
- any family obligations that restrict their hours of work.
- Salary and Working Conditions
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- whether the conditions of the new job are safe and suitable to the employee’s knowledge and skill-set
- whether the new job’s wage/salary level is lower than the previous job
Examples of Duty to Mitigate Activities
Some common examples of an employee’s job sear ch efforts in looking for new employment as part of the duty to mitigate include:
- looking for similar jobs online (e.g., Indeed, LinkedIn, etc.)
- reviewing employment opportunities
- submitting job applications
- attending job interviews (or mock interviews in preparation)
- participating in career transition services
- preparing/updating a résumé or cover letter
- registering for job search tools or with electronic job banks or employment agencies (Canada Job Bank, Ontario Job Bank, etc.)
- attending job fairs or workshops
- networking (e.g., contacting former colleagues, associates and friends for information on expected hiring needs in their organizations
- contacting prospective employers (e.g., e-mails or cold calls)
- submitting job applications
- attending job interviews
Typically, employees are required to keep track of their job search efforts, including when challenging their employer in a wrongful dismissal claim or severance package negotiation, or when EI benefits. This will usually include documenting the dates, names and contact information contact, the type of work you were looking for (e.g., job title) and the outcome of the job search activity.
Contact Us
At Bune Law in Toronto, you will be provided with experienced legal advice on a wide variety of employment matters, including what steps to take if your employment was terminated recently. The experienced employment lawyer at Bune Law takes pride in a reputation for excellence in client service. Call 647-822-5492 for a consultation.
If you are an employer, you should speak with an employment lawyer to discuss your options before making the decision to terminate employment and obtain the proper termination documentation for your employee to avoid a wrongful dismissal claim.
If you are an employee who has been terminated with or without cause, it is important to seek legal advice even if you have a written employment agreement that appears to restrict your severance pay entitlements. You may be entitled to more generous severance compensation under common law.
No matter which side you are on, our employment lawyer is ready to assist with your case. Please feel free to reach out to Bune Law at 647-822-5492.
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