The Ontario Court of Appeal has declined to deduct income earned from a wrongfully dismissed employee’s damages in a decision lawyers say shows courts are going to take a nuanced approach to mitigation going forward.
Lawyers say the decision means employers will not be able to assume that income gained by the employee during this period will automatically be deducted.
“Typically, when a damages award comes down, the employer says we deduct all income earned post-termination, but now judges are going to have to look closely at the type of job that people take,” says Miriam Vale Peters, the lawyer representing the former employee, Esther Brake.
The employee was awarded more than $104,000 in damages for a 20-month notice period after a trial judge determined she had been wrongfully dismissed by PJ-M2R, a McDonald’s franchise holding company that owns restaurants in Ottawa. She had worked as a manger at a couple of the restaurants until she was terminated in 2012.
Once a judge finds an employee has been wrongfully dismissed, employers have generally been entitled to subtract any income the former employee gained during the notice period from a new employer that mitigated their loss.
The judge, however, declined to deduct income Brake had earned during that time and the employer appealed that decision. The Court of Appeal upheld those damages, saying they were not “amounts received in mitigation of loss.”
Frank Portman, a lawyer with Stringer LLP, who was not involved in the case, says the decision will mean that employers intending to advance a mitigation defence in order to try to offset damages in a wrongful dismissal case will need to go beyond simply proving an employee earned an income during the notice period.
“It’s that extra level that makes what’s frequently a difficult defence even more difficult for an employer,” says Portman.
After she was terminated, Brake received income from a job as a Sobey’s cashier, but this was a part-time job she had during her employment with McDonald’s. She expanded her hours at Sobey’s after she was terminated.
The courts found that as she would have continued to work at Sobey’s even if she was not fired, this income could not be deducted from the damages.
“As Ms. Brake had worked a second job with Sobey’s while working full-time for the Appellant, her work for Sobey’s and her work for the Appellant were not mutually exclusive,” Justice Eileen Gillese wrote in the decision.
“Had Ms. Brake stayed in the Appellant’s employ, she could have continued to supplement her income through part-time work at Sobey’s.”
Brake also received $600 in income as a cashier at Home Depot during this time. The trial judge had found that the cashier position at Home Depot was “so substantially inferior” to the managerial position she held at McDonald’s that the income she earned there did not diminish the loss of her job.
The Court of Appeal upheld this part of the judge’s decision not to deduct this income, but it said it was because the evidence regarding this income was unclear.
In a concurring decision, Justice Kathryn Feldman said the trial judge was entitled to make the finding concerning the Home Depot income. When an employee is wrongfully terminated, they have a duty to mitigate the loss they experienced by making reasonable efforts to obtain a job that is comparable to the one they lost.
If Brake obtained or turned down such a job, her earnings or what she would have earned would be deducted from her damages. But if she could only find a job that was not comparable, she is entitled to turn it down and that amount she could have earned would not be deducted for a failure to mitigate her loss, Feldman said.
Feldman continued to say that when an employee is terminated wrongfully and then forced to accept an inferior position because of the lack of a comparable one, her income does not mitigate her loss and, therefore, should not be deducted form the damages.
“In this case, the employee was not an executive who could afford to live during the notice period without a salary,” Feldman wrote.
“It was in her interest to try to obtain a comparable managerial position but she was not able to do so, and because she could not afford to earn nothing, she had to take the only job she could find.”
Adrian Ishak, a partner with Rubin Thomlinson LLP, who was not involved in the case, says he was surprised by the decision on the point of mitigation, but he was ultimately convinced by Feldman’s concurring arguments.
“[If] an employee is entitled to turn down a job that is not equivalent or comparable, and they won’t fail in their duty to mitigate, then why should they be penalized when they accept that same job as they had the right to turn away from when they do it in order to survive?” he says.
Ishak says the decision shows that the duty to mitigate has become more nuanced and that the nature of the work that has generated the income will be considered going forward.
Vale Peters says the decision shows that while there is an obligation on the employee’s part to mitigate their losses, there is not going to necessarily be automatic deductions as a result.
“You still have a duty to mitigate, but that doesn’t mean your income is going to be deducted,” she says.
Portman says the decision brings into question how courts are going to treat income a former employee receives from the expansion of hours from a job they were doing part time before they were fired.
Jean Francois Lalonde, the lawyer representing the employer, declined to comment on the decision.