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Ruling puts onus on employers to specify duty to mitigate

|Written By Kendyl Sebesta

A former Goss Power Products Ltd. employee will receive full severance pay from his former employer despite his quick return to work, the Ontario Court of Appeal has ruled.

Writing in Bowes v. Goss Power Products Ltd., Appeal Court Chief Justice Warren Winkler ruled former vice president of sales and marketing Peter Bowes should receive full severance pay from the company because it hadn’t specified in its contract of employment that he must mitigate his loss if it terminated him without cause.

“From a practical standpoint, it is worth repeating that if parties who enter into an employment agreement specifying a fixed amount of damages intend for mitigation to apply upon termination without cause, they must express such an intention in clear and specific language in the contract,” wrote Winkler in the unanimous decision by a five-member panel of the Court of Appeal.

Bowes began working for Goss Industries Inc., the company’s predecessor, in October 2007. In April 2011, the company terminated Bowes’ employment without notice. He was earning a base salary of $140,000 at the time.

Under the company’s contract with Bowes, he would receive six months’ notice or pay in lieu on termination.

According to a letter of termination referred to in the case, the company had indicated Bowes would receive his salary for six months but must find other employment during that time period. It also required Bowes to let the company know if he landed a job.

Two weeks after Bowes’ termination with the company, he started a new job for which he received equivalent pay. But after the company paid the statutorily required three weeks’ pay to Bowes, it stopped all payments on the grounds he had mitigated his loss successfully.

Bowes sued. He argued in his application to the Court of Appeal that his employment contract entitled him to the remaining severance pay and didn’t require him to mitigate his losses.

The company, however, argued Bowes had a legal obligation to mitigate his losses despite the employment contract’s failure to state that explicitly.

The company had successfully argued before Superior Court Justice Kevin Whitaker last year that an employment agreement is subject to a duty to mitigate unless it relieved the employee of that obligation either directly or by implication.

Whitaker ruled Bowes wasn’t entitled to his full severance pay under his employment contract because he had mitigated his loss by finding new employment.

But Winkler found otherwise. He ruled Bowes’ employment contract entitled him to the money on termination. “A contract is a contract, and it is expected that it will be honoured,” wrote Winkler. “Nothing short of this can be countenanced.”

He added: “It would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages and then allow the employer to later seek to obtain a lower amount at the expense of the employee by raising an issue of mitigation that was not mentioned in the employment agreement.”

The company also argued it was unfair for Bowes to receive a double payment from both it and his current employer. Winkler rejected that argument, however.

Alex Van Kralingen, an associate at Wardle Daley Bernstein LLP who represented Bowes in his appeal, says his client is “very pleased” with the ruling.

“He seems quite pleased,” says Van Kralingen.

“I think the decision was very well reached and seemed to side with our arguments. I think it showed Justice Winkler agreed with what we were presenting.”

Van Kralingen notes the decision is important for both employees and employers.

“The ruling also has practical implications for employers.

It shows that employers will have to expressly state the requirement to mitigate when an employee is entitled to a fixed term of notice or pay in lieu.

That will hopefully spark a conversation with the employee and will require them to expressly talk about it during the negotiation period.”

He adds: “I think it will give employees some comfort that they will receive the full amount they are entitled to in similar situations.”

David Rosenfeld, an associate at Koskie Minsky LLP who represented Goss Power Products Ltd. in the appeal, couldn’t be reached for comment.

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