Employment contracts: is there a duty to mitigate?
Jul 12, 2012
When an employee is terminated without cause and there is no employment contract in place that addresses the terms of separation, the employee is entitled to reasonable notice or pay in lieu of reasonable notice. Reasonable notice is determined by the courts as the reasonable time period required for the employee to find a comparable position. In these circumstances, if the employer wrongfully dismisses an employee (without providing reasonable notice) the employee has a duty to mitigate the damages by making reasonable efforts to find new employment. This duty is well understood in those situations where there is no employment contract. However, the courts have offered some mixed messaging, suggesting that the duty to mitigate may also apply even where there is a contract in place. In the unanimous decision of Bowes v. Goss Power Products Ltd.  O.J. No. 2811 , the Ontario Court of Appeal confirmed that where an employment contract stipulates a sum to be paid or a fixed term of notice upon termination without cause, there is no tacit mitigation obligation.
Facts: Bowes was an executive at Goss Products Ltd. (Goss). His employment contract contained a severance clause providing a fixed term of notice upon termination without cause varying with length of service. After 42 months of service, Bowes’ was terminated without cause. Under the employment contract, Bowes was entitled to salary and continued car allowance for 6 months. When Goss Power learned that Bowes secured alternative employment less than two weeks after his termination, it paid Bowes only the minimum statutory entitlements reasoning that Bowes had successfully mitigated his losses ending Goss’ obligation under the contract.
ssue and Holding: The issue at play was whether Goss had an obligation to pay Bowes the stipulated amount; this turned on the question of whether, in the presence of a fixed period of notice in the employment contract, Bowes had a duty to mitigate his losses. The Court held that when an employment contract fixes the period of notice but makes no reference to mitigation, the employee is not required to mitigate his losses.
Implications: Employers are not allowed to offset severance obligations under contract by the amount of income earned from alternative employment during notice period. The decision does not remove the duty to mitigate at common law where the employment contract does not establish a notice period or fixed severance payment. For best practice, the interests of the parties are often better served by the clarity provided by contractual obligations as opposed to written contracts with uncertainties of what is reasonable notice or whether the duty to mitigate is satisfied.
by Selina Pellerin
Reprinted with Permission from MacLeod Robinson MacLean