Today, in the conclusion of her two part guest post on the dismissed employee's obligation to mitigate damages, Marie-Hélène Mayer discusses the issue in more conventional dismissal situations. I thank Marie-Hélène for her excellent posts.
Mitigation - Unraveling the PuzzleBy Marie-Hélène Mayer
In my blog post on Monday, I discussed the recent decision made by the Ontario Court of Appeal in the case of Chevalier v. Active Tire & Auto Centre Inc. The outcome of this decision confirms a general principle of employment law: when one party breaches a contract, the other party is obliged to take all reasonable steps to minimize – that is, to “mitigate” their losses. In some cases, mitigation means a terminated employee may need to accept an offer of re-employment from their previous employer. Although not a common situation, it is happening more frequently and marks an important legal development. Today, I examine a more typical mitigation scenario: when an employee is terminated, provided with a severance package, but is not offered a position back with their previous employer.
When discussing the concept of mitigation it is important to go back to first principles of contract law. Mitigation is a principle of the law of damages for breach of contract. As employment law is in essence contract law, the concept of mitigation has figured prominently in employment law cases. As noted above, a dismissed employee must take all reasonable steps to minimize any losses they have suffered as result of the loss of their employment. In non-legal jargon this means that if you have lost your job, you have an obligation to find another job as quickly as possible to cut your losses.
What is sometimes unclear to both employees and employer (and where most of the questions arise from both parties) is whether an employer must continue to pay an employee during their notice period, once that employee has secured new employment. An example is useful to clarify.
Lisa is terminated November 1, 2013, and is provided with six months of notice. Lisa’s termination agreement does not address what happens if she gets another job before the six months are up. Lisa gets a new job on January 30, 2014. Is Lisa still entitled to receive the remaining months of salary and benefits? The technical legal answer (and the one you would encounter in a contract textbook) is that the employer is no longer obliged to continue to pay Lisa once she ceases to suffer an interruption in her earnings.
The practical answer is, not surprisingly, rarely this straightforward. Usually a compromise is reached and a “mitigation clause” is inserted into the termination agreement. This legal term usually states that should the employee secure a new position before the end of the notice period, the employer will pay a portion of what is remaining – usually half. (This too can be negotiated). It is important to remember the general principle: an employee has a positive obligation to look for another job. This obligation can be modified by agreement, but the general presumption, absent agreement to the contrary, is that the employee must take reasonable steps to secure replacement income if their employment is terminated.
In my experience, employees sometimes have unrealistic expectations and do not fully appreciate what steps they are obliged to take to look for a new position. There is a balance which needs to be achieved between the competing interests of employees and employers. Employees want the largest package possible and employers are looking for ways to minimize costs.
Employers need to understand that in order for the doctrine of mitigation to apply – the employee must take reasonable steps to find a comparable position within the prescribed notice period. It is not reasonable to expect a former employee to simply take the first offer that comes along – especially if that offer is for considerably less money. Some lawyers will argue that an employee must accept any alternate employment. I disagree. The accepted thinking is that an employee is obliged to accept only a comparable position. This is sometimes tough for employers to accept.
A final point for employers to consider is that no matter how well an employee may have mitigated their damages, employers must still meet their statutory obligations of notice and/or severance under applicable legislation. Payment under the applicable statutory requirements is not set off by mitigation earnings.
The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal issues.
Marie- Hélène Mayer B.A. (Hons.), LL.B/J.D. is an employment lawyer with Rubin Thomlinson LLP. Marie-Hélène has spent most of her career in private practice appearing before various administrative tribunals and courts. Her primary focus is advising employers and employees on workplace issues under both Ontario and Federal law, termination settlements, employment contracts, wrongful dismissal litigation and human rights complaints. Marie-Hélène has also worked for a large financial institution, where she acquired corporate human resources experience. Having worked in both private practice and in the corporate world means that Marie-Hélène can skillfully apply and interpret employment law in today’s business workplace. Marie-Hélène may be reached at email@example.com. Marie- Hélène’s own blog can be found at Club Mom.
Thanks for clarifying an area that was unclear to me. One part I don't understand fully is "employers must still meet their statutory obligations of notice and/or severance under applicable legislation." I've been told that employers are required to pay a minimum of one week of severance per year worked (in Ontario). Suppose an employee is terminated after 20 years of service, is offered 40 weeks of severance, but finds new work in 5 weeks. Are you saying that this employee is still entitled to at least 20 weeks of severance from the old employer?ReplyDelete
Hey Michael, great question. I will see if I can get Marie Helene to answer, as I am not qualified to do so; although I think I know the answer based on dealing with employment lawyers for many years.Delete
Hi Michael, here is what Marie- Hélène has to say.Delete
1. There is no rule of thumb for weeks per year– see my blog at clubmom -- http://clubmom.ca/termination-much-owed-get-let-go/
2. Provincially regulated employees in Ontario are governed under the ESA which sets out the minimum employment standards which cannot be lessened, even by an agreement between an employer and an employee. There are two types of payments under the ESA -- notice and severance. My point is that where notice and severance are payable and all of the statutory criteria are met, employers are still obliged to meet the minimum standard even if an employee secures another position.
Severance is payable if certain conditions are in place. Based on years of service up to max of 26 weeks. If employee was owed 20 weeks under ESA (combination of severance and notice) and not the common law – they still get it even if they find a job after 5 weeks.
@Marie-Hélène: Thanks for the further clarification, both in this comment and the earlier blog article. I'm hoping not to ever need to know all this, but you never know.Delete