May 5, 2021
Mitigation is the legal term that reflects the obligation of any Plaintiff to take all reasonable steps to reduce their loses. This results in savings for the at fault defendants.
Mitigation after termination of an employee is often an issue that the employer feels strongly about. Typically, however, most situations reflect the sympathy that judges feel for employees. In 1975, the Supreme Court of Canada ruled that the onus is on the employer to prove failure to mitigate. The standard of reasonable efforts is often one that is easily met by employees.
Hickey v. Christie & Walther Communications Limited is an exception to that general statement, and therefore a useful reminder that sometimes employers are rewarded for defending claims when the facts are in their favour.
Hickey was the Vice-President of Sales for a communications business. On the side, he began to operate his own business, unbeknownst to his employer. His employment contract required that he devote his full time and attention to his job.
When his employer sold its business to another company, it terminated Hickey. His employment contract provided for 12 moths pay in lieu of notice, subject to the duty to mitigate.
The buyer made Hickey a series of offers of employment. The final offer would have come close to duplicating his prior terms of employment. Hickey continued to express concerns about how his bonuses would be calculated, and declined that offer.
The trial judge agreed with Hickey that he acted reasonably in rejecting the first two offers, but ruled that Hickey ought to have accepted the final offer. His concerns about the bonus calculations were simply not reasonable. The offer was comparable to his prior terms of employment. Although it was not identical, comparable does not mean identical.
Hickey tried arguing that even though the offers might be comparable, the negotiating process had gone poorly. He was concerned about whether he truly had a place with the buyer. The judge rejected this argument.
Although the judge did accept that the first offer was a “low ball” offer, she felt that Hickey’s response was equally an overreach, that the buyer was acting in good faith, and that the buyer valued Hickey’s abilities. She felt that Hickey, however, never sincerely negotiated with the buyer, and was really only interested in his 12 months pay in lieu of notice. His actions were unreasonable, and he failed to mitigate. Since the comparable offer would have made him whole, his claim was dismissed.
Even if Hickey acted reasonably in turning down the offer, the judge further ruled that his ongoing income from his side business ought to be counted as mitigation income, and offset his losses.
This is interesting because in some situations, an established side income is treated neutrally, even if it increases during the notice period. The judge in Hickey did not consider that possibility, but did find that the increased earnings would have offset all of Hickey’s losses. The fact that he had operated the side business in breach of the terms of his employment contract did not help him. Nor did the judge’s review of his credibility, in particular that he had actively concealed his earnings from the side business in an effort to gain an improper advantage in the lawsuit.
This case stands as a useful reminder that:
- the onus is on the employer to prove that the employee failed to take reasonable step to obtain comparable employment;
- that onus can, however, be satisfied where the employee acts unreasonably;
- problems with credibility or other dishonesty will count against the employee in determining whether they acted reasonably; and
- in a sale of a business situation, good faith on the part of the buyer will help the seller’s arguments about mitigation.