Mitigation – Unraveling the Puzzle

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 Puzzle

By 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 mmayer@rubinthomlinson.com. Marie- Hélène’s own blog can be found at Club Mom. 

Employment Mitigation Issues - Does a Dismissed Employee Have to Return to Their Old Job if it is Offered Back?

As I have enough trouble writing about income tax and money, I have steered away from discussing employment issues on my blog, other than a rant about references and how they are A No Win Situation for Past and Future Employers and how people Waste References.

As most of us will be dismissed, fired or laid off at some point in our careers, I thought it would be interesting to have a series of posts on the mitigation of damages from both the employee and

employer's perspective. 

Since this topic is complex, I have enlisted the help of Marie-Hélène Mayer, an employment law specialist whom I have worked with over the years. In the first post of her two-part series, I think you will be shocked at how a recent court case expects employees to mitigate their damages in certain circumstances.

 

Termination and Return to Work: Ontario Court of Appeals Weighs in on Mitigation

By Marie-Hélène Mayer

One of the most frequent questions I get asked when providing advice to a newly terminated employee is how quickly he or she should be looking for a job. Employers are equally concerned with how quickly a terminated employee should be seeking replacement employment since they bear the entire financial burden of paying severance. Both employees and employers are often surprised to hear that an employee’s obligation to secure replacement employment (or as lawyers like to call it, “mitigate” their damages) is quite stringent and requires employees not only to take active steps to look for a new position, but may, in some instances, require the employee to consider going back to work for their former employer. This may sound counter-intuitive and impractical (it can be) but is happening with greater frequency.

Today, in the first part of a two-part series on mitigation, I discuss a recent decision of the Ontario Court of Appeal, Chevalier v. Active Tire & Auto Centre Inc. (“Chevalier”) 2013 ONCA 548, which confirms the principle that the law of mitigation, may in certain circumstances, require a terminated employee to accept an offer of re-employment from its previous employer. On Wednesday, in the second part of this series, I will examine an employee’s obligation to mitigate in the more conventional situation, where the employee is dismissed and not offered their job back.

In Chevalier, the employee had been the manager of an auto and tire centre. He was 55 years old and had worked there for 33 years. The employer was having financial troubles. The employer thought (erroneously) that he was entitled to lay the employee off on that basis without providing adequate notice. The employee took legal action. Five days after litigation began, the employer recalled the employee to work.

The employee declined to return to work and instead proceeded to trial. The employee made several allegations against his employer. He claimed that he was not prepared to return to his job because it would be too embarrassing and humiliating. The employee also claimed that his employer had embarked on a deliberate campaign of harassment and intimidation which made returning to work impossible. But the evidence simply did not support his claims. The Court found no basis to conclude that the employer had been motivated by anything other than legitimate business reasons when it decided to lay off this employee. In short, the employer had not engaged in poor conduct or any “campaign of harassment”. In the end, the Court found that a reasonable person in the same position would have accepted the offer to return to the workplace. Since the employee should have returned to work when requested, but refused, no damages were awarded.

What does this mean as a practical matter? If you lose your job, and later your employer changes its mind and offers you your job back, are you obliged to take it? If you are an employer, are you under an obligation to re-employ a terminated employee? Are there limits on how and when it should be done?

Here are a few things to think about if you are an employee faced with this situation. The legal landscape has changed. Judges are unlikely to be impressed by the fact that you may find it uncomfortable to return to work after being let go. This is particularly true if your employer has been experiencing financial difficulties. Getting a new job is difficult, and when an employer makes a legitimate offer to rehire an employee, unless you have something better waiting for you, most employees would be foolish to not accept the offer and demand a notice payment instead. The Courts are unlikely to side with the employee unless there is evidence that the employer’s offer is insincere or that the relationship between the employer and the employee is completely irreparable. Similarly, a court would not expect an employee to accept a job offer from their former employer if there is evidence that the employee was humiliated or embarrassed prior to being let go.

If you are an employer, your intentions must be sincere and should look that way too. Optics are very important. Employers who can show that they have behaved appropriately and that the work environment is respectful may save themselves significant severance dollars. Employers must act at all times as though a record is being created (and make sure that they do create a documentary record) and conduct themselves appropriately. Employers who do so can limit their liability and a potential wrongful dismissal suit down the road.

Join me again on Wednesday, I will discuss mitigation in context of more traditional dismissal cases.

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 mmayer@rubinthomlinson.com. Marie- Hélène’s own blog can be found at Club Mom.