Wrongful Dismissal and the Duty to Mitigate

The duty of an employee to mitigate damages after a termination of employment can be a serious point of contention in a wrongful dismissal claim.

How can an employer demonstrate that an employee has failed to mitigate and how can employees be certain as to how a court will calculate mitigation income for the purpose of reducing the amount of compensation owed to them by their employers?

There are many unknowns when it comes to an employee’s duty to mitigate their damages following termination of their employment. The following is a refresher on several common scenarios faced by employees and employers alike.

The general rule

Many courts and jurisdictions have attempted to provide greater certainty with respect to the judicial treatment of the duty to mitigate throughout the reasonable notice period.

For instance, in Brake v. PJ-M2R Restaurants Inc., the Ontario Court of Appeal held that a dismissed employee’s income earned during the period that they are entitled to statutory termination and severance pay is not deductible as mitigation income from the damages awarded against the former employer.

In the 2016 decision Steinebach v. Clean Energy Compression Corp., the duty to mitigate was defined by the British Columbia Court of Appeal as follows:

“The duty to mitigate is not a duty owed to an employer, rather it is a duty an employee owes to conduct himself or herself as a reasonable person. In most cases, this necessarily means that the employee must take reasonable steps to find alternative employment upon dismissal”.

In this case, the defendant, Clean Energy Compression Corp dba IMW Industries, dismissed the plaintiff, Steve Steinebach, from his position as a salesperson.

Initially, Mr. Steinebach attempted to find employment in the same field but was unsuccessful. As of approximately three months following his termination, Mr. Steinebach decided to pursue a new career path in financial investment advising. He was hired at an investment firm approximately eight months after his termination.

The trial judge determined that Mr. Steinebach was wrongfully dismissed and was entitled to 16 months’ notice but concluded that he had failed to adequately mitigate his damages. In consequence, the trial judge reduced Mr. Steinebach’s notice period by three months.

However, the Court of Appeal concluded that the trial judge erred when he did not explain how he calculated the three-month reduction to the notice period. The trial judge also did not explain whether the timing of Mr. Steinebach’s career change was considered a failure to mitigate or if there was a certain point by which Mr. Steinebach should have secured alternative employment.

This decision also provides instructions for employers seeking to prove that an employee has failed to fulfill their duty to mitigate:

• The employer bears the burden of proving that an employee failed to mitigate his or her damages by not acting reasonably.
• It may constitute a failure to mitigate when an employee prioritizes personal goals and preferences rather than focus on what is reasonable, for instance in the case of an employee who chooses to pursue a new career.
• An employee may be found to have inadequately mitigated their damages by opting for alternative employment at a lower income when a higher paying position was available.
• If an employer is able to demonstrate that an employee has failed to mitigate, the court may either:
  • find that the employee is not entitled to any damages; or
  • reduce the employee’s damages based on the estimated period within which the employee ought to have secured alternative employment and thereby failed to mitigate.

What constitutes mitigation income?

What about an employee who has a second job or consults on the side? This post-termination income can count as mitigation income according to the British Columbia Court of Appeal in Pakozdi v B&B Heavy Civil Construction Ltd.

In this recent case, the plaintiff, David Pakozdi, a man in his fifties, provided consulting services to third parties while maintaining permanent employment as a bid estimator to the defendant, B&B Heavy Civil Construction Ltd. The employer was aware of Mr. Pakozdi’s side work and had no issue with it.

Following the termination of his employment, Mr. Pakozdi increased the amount of consulting work that he did and consequently began to earn more consulting income. He also filed a claim for wrongful dismissal against his former employer. The trial judge awarded him five months’ pay in lieu of reasonable notice, plus a further three months to compensate for the difficulties that Mr. Pakozdi would encounter in trying to secure other employment due to a medical condition.

The British Columbia Court of Appeal found that the trial judge had erred by failing to count the increased consulting income as mitigation income. The court clarified that any new income that would not have been earned had the employment relationship continued will count as mitigation income. Accordingly, any increase in income earned at a second job or through consulting work counts as new income and will be deducted from any damages awarded for wrongful dismissal.

What constitutes “alternative” employment?

It is worth mentioning that, in addition to the duty on dismissed employees to make reasonable efforts to secure new employment, there are certain circumstances in which an employee may have an obligation to return to work for the employer who dismissed them.

The 2008 Supreme Court of Canada decision Evans v. Teamsters Local Union establishes this principle.

While the employer bears the onus of demonstrating (1) that the employee has failed to make reasonable efforts to find work and (2) that work could have been found, this can be accomplished by extending a reasonable offer of employment to the dismissed employee.

The central issue is whether a reasonable person would accept the opportunity, and some factors that will be considered are:

• Whether the offer includes a similar salary and working condition;
• Whether personal relationships with the employer/coworkers have deteriorated as a result of the termination; and
• Whether an employee would be forced to work in an atmosphere of hostility or humiliation.

Take-aways

Both employers and employees involved in a wrongful dismissal or constructive dismissal claim should consult employment counsel to determine if adequate measures are being taken to mitigate damages and to better understand how this mitigation income will be calculated.

If you have any questions or would like further information regarding the duty to mitigate the loss of income following a termination of employment, please contact Alexandra Hobson at Sultan Lawyers PC by telephone at 416-214-5111 or by here.