Recently Terminated? Know Your Legal Obligations

July 13th, 2012 by Meliha Waddell

The duty of a terminated employee to mitigate their losses by finding alternate employment during the notice period has been hotly debated for some time. It comes as no surprise that employers, who are providing salary continuance in lieu of notice, insist that they be notified if the employee finds new employment during the notice period. The consequences of doing so, however, may mean that the employer will reduce the salary continuance payments or even cut them off completely, as the employee has mitigated their losses.

The debate is centered on how to best interpret contractual ambiguities. That is, many employment contracts set out the terms of the notice period the employee will be entitled to upon termination, but remains silent on the duty to mitigate. Thus, the question is whether the employer is entitled to still rely on the duty to mitigate to cut off salary continuance payments when the employee becomes re-employed.

Ontario case law has never given a clear answer on this issue. This changed last month with the release of the Ontario Court of Appeal’s decision in Bowes v Goss Power Products Ltd. The employee contract in this case was exactly alike to the one described above. It set out the employee’s entitlement upon termination without cause to a fixed period of notice or payment in lieu of notice. It remained silent on the duty to mitigate. The employee found a new job within two weeks of his termination at the same level of income. When Goss found out, they ceased to make payments claiming they were not responsible to pay any amounts Bowes had mitigated.

The Court of Appeal ruled in the employee’s favour. It concluded that the specified termination payment was either a contractual debt due or a liquidated damages amount. Either way, it does not constitute an award of damages at large under common law, like those that arise when someone breaches a contract, and so is not subject to the common law duty to mitigate damages.

This does not mean, however, that there will never be a duty to mitigate. The Court of Appeal also held that it is indisputable that the parties could have specifically agreed that mitigation did apply. Thus, it is the default position in the absence of the term to the contrary that mitigation does not apply. It remains open to the parties to agree to a term that leaves the employee subject to an obligation to attempt to mitigate his or her damages.

What this means is that employers must protect themselves by carefully drawing up detailed employment contracts and employees must take due care in reading these contracts and knowing their obligations before signing.

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