New guidance on mitigation of wrongful dismissal damages from the Court of Appeal
August 8, 2017
When an employee is wrongfully dismissed from her employment, she is required to seek alternative employment to mitigate, or reduce, the damages she incurs. The income earned from alternative employment is normally deducted from the damages the former employer owes to the employee. In a recent decision, Brake v. PJ-M2R Restaurant Inc., the Ontario Court of Appeal provided new guidance on when an employee’s mitigation income should be deducted from a wrongful dismissal award.
The employee in this case worked for various McDonald’s restaurants for 25 years and for the employer’s franchises for the equivalent of 20 years, with the last eight years as a Restaurant Manager. The employee was 62 years old at the time of her termination. Throughout most of her employment, the employee received excellent performance reviews. In 2011, she began to receive negative performance reviews and was placed on McDonald’s equivalent of a progressive discipline plan. Despite substantial success on the plan, the employer told the employee that she had failed the plan and that she had a choice between a demotion to First Assistant and termination. As she found the proposed demotion position humiliating, she declined the offer and did not return to work.
The employee brought a successful action for constructive dismissal. The trial judge awarded 20 months’ notice, inclusive of statutory entitlements. He found that the employee was not required to accept the demotion position to mitigate her damages as a reasonable employee would not have done so. Moreover, he found the employee had made reasonable efforts to mitigate her damages, although she did not apply for any restaurant management positions. He declined to subtract any income earned during the notice period from the employee’s damages.
The Court of Appeal upheld the trial judge’s findings and provided clarification on a number of mitigation-related issues. They confirmed that EI benefits are not to be subtracted from damage awards for wrongful dismissal as the employer ought not to profit from benefits payable to the employee. The Court also clarified that income earned by an employee during the statutory notice period is not to be deducted as mitigation income, as statutory entitlements are not damages.
Once an employee has proven wrongful dismissal, the onus shifts to the employer to demonstrate that some or all of the losses incurred by the employee were avoidable or avoided. That is, the employer must prove the extent to which the employee mitigated her damages. Here, during the common law notice period, the employee earned income from a part time job at Sobey’s that she also held during her full-time employment with the employer. Although she increased her hours at Sobey’s after her termination, the Court declined to deduct the income earned as her full-time job and the Sobey’s job were not mutually exclusive. Moreover, the income earned from Sobey’s did not rise to a level where it should be considered a substitute for the amounts she would have earned at the employer. The Court left for another day when supplementary income could reach a threshold where it should be treated as mitigation income.
Notably, the concurring minority decision would have held that where an 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.
This decision serves as a warning to employers that the onus of proving mitigation is a heavy one. Not all income earned during the notice period is mitigation income, depending on the timing and circumstances in which the income was earned. For employees, this decision clarifies which entitlements are free from the duty to mitigate, and indicates that some income earned during the difficult period after termination may not be deducted from damages. The type of job in which income is earned is an important factor courts will consider.
Brake v. PJ-M2R Restaurant Inc, 2017 ONCA 402
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