No Duty to Mitigate Where Employment Contract Contains Set Termination Amount, Court Rules

Written on behalf of Peter McSherry

In wrongful and constructive dismissal cases, a duty to mitigate is generally placed on the employee. A duty to mitigate requires the employee, whether terminated with or without notice, to take all reasonable steps to mitigate his or her losses. 

However, in a recent Ontario case, the court held that an employee had no duty to mitigate where the employment contract included a set termination amount.

Employee Terminated Without Cause

The employee began working for the employer in January 2014 pursuant to a written employment agreement, which was for an indefinite term of employment. The contract included a provision for determining the employee’s severance or payment in lieu of notice if the applicant was terminated without cause. The severance would be inclusive of the applicant’s entitlements under the Employment Standards Act (“ESA”). The amount of severance would be based on the number of years the employee had worked for the employer.

Of note, the employment contract, which had been drafted by the employer, made no reference to mitigation nor the manner in which payment was to be made upon termination (i.e. periodic payments or a lump sum payment).  

After the employee’s employment was terminated without cause in September 2019, the employer assisted the employee in immediately finding another job. The employee began his new job within the contractual notice period, with earnings equivalent to what he had been earning before. The employer paid the applicant his entitlements under the ESA in accordance with its payroll practice.

However, the employee applied to court claiming entitlement to a lump sum payment of 11 months’ severance, or $148,076, as liquidated damages (minus the statutory entitlement paid). The employee argued that this amount was not subject to mitigation because his employment agreement stipulated a notice period and was silent with respect to mitigation. The employee therefore submitted that there should be no deduction for having mitigated his loss.

In response, the employer submitted that the employee was entitled to 10 months’ severance less his statutory entitlements under the ESA, subject to a reduction for mitigation.   

Court Finds No Duty to Mitigate Based on Employment Contract

The court began by explaining the applicable legal principles as follows:

“At common law, it is presumed that every employment contract of an indefinite term includes an implied term that an employer must provide an employee with reasonable notice prior to termination, if the termination is without cause….The presumption is rebuttable “if the contract of employment clearly specifies some other period of notice, whether expressly or impliedly”…. It is settled law that as long as the minimum requirements under the ESA are met, parties are at liberty to contract out of the common law notice period. 

In order to displace the common law, the intention must be clear but no particular form of words is required in order to do so…It is not necessary for the parties to explicitly displace the common law, but any ambiguities about that intention will be resolved in favour of the employee.”

Thus, the court held that the parties had contracted out of the common law by specifying the notice period, or pay in lieu of notice, in the employment contract were the applicant to be terminated without cause. It further held that because the employment contract made no reference to mitigation, the employee was under no duty to mitigate his damages. 

As such, the court held that the employee was entitled to the sum stipulated in the employment contract, upon being terminated without notice. Based on the language of the contract, the court determined that the employee was entitled to 11 months’ of severance.

Finally, with regard to the employee’s entitlement to a lump sum, the court observed that the employment contract was silent on how payments were to be made upon termination. The court further noted that, at common law, there is a presumption that damages in wrongful dismissal cases will be awarded in a lump sum and that no authority was presented to rebut the presumption.

In the result, the employee was therefore awarded a lump sum payment equivalent to 11 months’ notice, the amount of which was not subject to mitigation.

Get Help

If your employment has been terminated without reasonable notice or severance from your employer, you might have a claim for wrongful dismissal. Even if your employer claims that the notice or severance is reasonable, it pays to check with a highly qualified employment lawyer to ensure that all legal requirements were, in fact, met by your employer. The employment laws are complicated and intertwined. The basis for a claim might exist even if your employer claims to have followed the law. 

At Peter A. McSherry Law Office, I provide each of my clients with a full assessment of his or her case. Disputes in wrongful dismissal claims are usually based on severance pay, benefits and/or the timeliness of the notice. However, if an employer claims or cites misconduct as the cause for dismissal, reasonable notice is not needed. We can discuss the facts of your case. I can help you discover and weigh your options in a straightforward manner with respect for your needs and objectives. I can protect your rights. Call me at 519-821-5465 or contact me by e-mail to schedule a consultation.