January 18, 2013
By Brad Smith
The Ontario Court of Appeal concluded that in certain circumstances a terminated employee is not required to mitigate her or his damages. Those circumstances arise when an employee is terminated without cause, the employment contract specifies the notice period but does not specify the employee must mitigate his or her damages.
In Bowes v. Goss Power Products Ltd. the employee had a written employment contract that specified the notice period if the employee was terminated without cause. After terminating the employee and the employee obtained alternative employment, the employer stopped payment.
The employee sought payment of the notice period. The employer argued its obligation came to an end when the employee obtained the employment. The Court of Appeal ruled in favour of the employee. The Court held that when an employee and employer agree to a specific period of notice and do not state the employee has a duty to mitigate, the employee does not have a duty to mitigate.
This is a statement of principle of a 5 member panel of the Ontario Court of Appeal and written by the Chief Justice of Ontario. The decision will impact all employment contracts with a fixed notice period in Ontario if not across Canada. It may increase the cost of terminating an employee if the employer had anticipated the employee would mitigate his or her loss of employment. The circumstances of Bowes show the potential cost. The contract specified a 6 month notice. The employee got new employment at the same salary 2 weeks after termination. Thus, after paying the statutory minimum, the employer paid an extra 23 weeks salary because the employee did not have to mitigate the loss.
It would be wise for employers to review their form contracts of employment to ensure they specify an employee has a duty to mitigate.