Putting on the Brakes: Ontario courts are limiting the scope of post-dismissal mitigatory earnings

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A long-standing rule of wrongful dismissal cases is that employees who seek additional severance are required to look for new work post-dismissal. Employers are only obligated to pay monies for actual loss incurred beyond any statutory entitlement period.

Take a simple example. Imagine a professional employee who made $70,000.00 per year and upon dismissal is entitled to a common law notice period of 12 months. Six months post-termination, the employee finds a new job as a cashier earning $16.00 per hour for 37.5 hours per week (or $31,200.00 annually). In such a scenario, the employee’s actual loss during the notice period would be $54,400.00.

Yet, as the Ontario Court of Appeal noted in its decision of Brake v. PJ-M2R Restaurant Inc. (2017 ONCA 402), the duty of an employee to mitigate loss by seeking new work does not go so far as to require them to accept just any old job. The obligation is to pursue comparable re-employment. As such, a former employee can typically turn down an inferior job offer (in relation to prior employment) and not be found to have failed in their duty to mitigate loss.

This then raises important questions. What happens if an employee takes an inferior job post-dismissal just to pay the bills? Are monies earned in this inferior role credited to the former employer in a wrongful dismissal lawsuit? Does the fact that the employee’s duty to mitigate would not require them to accept such a position matter?

We got a glimpse of the answer to these questions in Brake. In her concurring reasons, Justice Feldman wrote:

where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.
It is always up to the trial judge to determine if the employee has met her duty to mitigate. When a wrongfully dismissed employee accepts new employment during the notice period, the question of whether or not to deduct those earnings depends on the trial judge’s assessment of mitigation. If the trial judge finds that the new job is comparable to the old one, the earnings should be deducted as mitigation of damages. If the trial judge finds that the new job is vastly inferior to the old one, such that the employee would not be in breach of the duty to mitigate if she turned it down, the earnings should not be deducted. [emphasis added]

It is important to note that the majority of the Court in Brake did not address the subject of how to treat such earnings from an inferior job in their judgment. As a practical matter, it was largely unnecessary to resolve the question given the specific facts before the Court.

As such, employment lawyers have been left to wonder if lower courts would pick up the ball from Justice Feldman and apply her suggested principle in wrongful dismissal cases across Ontario.

Fast forward to May 2018 and the decision of the Ontario Superior Court of Justice in MacKenzie v. 1785863 Ontario Ltd. (2018 ONSC 3442).

MacKenzie is, by and large, a straightforward wrongful dismissal case. The Court laid out a summary of the facts as follows:

Mr. Mackenzie was 65 at the date of termination and had worked in the most senior position in the company for five years supervising 40 – 50 staff. His salary was $65,000.00 per annum. He made efforts to find employment following termination, but was not able to find a job of comparable responsibility or salary in the depressed Dryden area.
The plaintiff took immediate steps to mitigate his damages. He commenced working as a consultant to his wife’s printing company on October 15, 2015 at a salary of $2,000.00 per month and worked until April 15, 2016, a period of six months. On March 1, 2016, he began employment with the Patricia Region Tourist Council, doing promotion, for a salary of $1,500.00 per month. He still works at this job.

Given the plaintiff’s earnings from his new jobs, the Court had to decide how to treat these monies. Should they be deducted or not from an award for wrongful dismissal? There could be no question that the jobs were inferior to the plaintiff’s old work. Neither position was managerial and they paid only 36 to 28 percent of the wages the plaintiff used to earn.

The Court in MacKenzie chose not to deduct. In deciding on this course of action, Justice Feldman’s reasons in Brake were explicitly cited as the rationale. To our knowledge, this is first time such an outcome as happened in an Ontario wrongful dismissal decision.

What does this mean for employers?

The short answer? Wrongful dismissal cases may have just gotten a lot more expensive for Ontario employers. Let’s return to the hypothetical example produced at the start of this article:

Imagine a professional employee who made $70,000.00 per year and upon dismissal is entitled to a common law notice period of 12 months. Six months post-termination, the employee finds a new job as a cashier paying $16.00 per hour for 37.5 hours per week (or $31,200.00 annually). In such a scenario, the employee’s actual loss during the notice period would be $54,400.00.

In this case, the employee’s new work is of a non-professional nature and paid only 45 percent of the wages that he or she used to earn. This is not comparable re-employment. Historically, an employer might nonetheless have received credit for the $15,600.00 the employee earned post-dismissal. But if we apply the law as articulated in Brake and MacKenzie, the days of such a deduction may now be over.

Employers must be aware that it is now an increasingly risky strategy to fight a wrongful dismissal case on the hopes of saving money via employee mitigation of loss. To save time, stress and lawyers’ fees, employers may wish to consider setting out at the beginning of the employment relationship what a dismissed employee can expect in severance (and then pay that amount). To that end, having an enforceable employment contract is critical.

This article was originally published on July 16, 2018 at First Reference Talks.

Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca