A recent Ontario Court of Appeal decision dealt a blow to employers’ ability to credit employee mitigation efforts and income against wrongful dismissal damages.
The employee in Brake v PJ-M2R Restaurants Inc had worked for various McDonald’s franchises in some capacity for more than 25 years. She was employed by one particular franchise, PJ-M2R Restaurant Inc. (“PJ-M2R”), for a significant portion of that time. She had been working as Restaurant Manager for a number of years when she was dismissed without notice and without receiving her statutory entitlements under the Employment Standards Act, 2000 (the “Act”).
Employees whose employment contracts do not limit them to their statutory minimum entitlements upon termination often receive generous reasonable notice awards from the courts when they are dismissed. These awards are ostensibly subject to employees’ duty to mitigate their losses. This means that a terminated employee cannot sit idly by and collect damages from her previous employer without trying to search for new employment. Further, it means that any income the employee earns from other sources during the reasonable notice period is ordinarily deducted from any award they receive.
The trial judge determined that PJ-M2R did not have just cause to dismiss the employee. The employee was 62 years old, and the trial judge determined that she had the equivalent of 20 years of service. Ultimately, the trial judge found that Ms. Brake was entitled to 20 months of reasonable notice, inclusive of statutory severance payments. He further found that she had fulfilled her duty to mitigate her losses, and did not deduct any of the income she had earned during the notice period from the award.
The Ontario Court of Appeal upheld the findings of the trial judge. On appeal, the company argued that the employee had not made reasonable efforts to mitigate, and that the trial judge had failed to deduct income the employee had earned during the reasonable notice period from the award as mitigation earnings.
Reasonable Efforts to Mitigate?
The evidence at trial was that while the employee had applied to cashier positions at various retailers, and had briefly attempted to start a babysitting and cleaning service, she had not applied to any comparable restaurant management positions for the first six months after her employment was terminated. The Court of Appeal upheld the trial judge’s ruling that the employee had made reasonable efforts, and noted that the test is whether the employee, “has stood idly or unreasonably by, or has tried without success to obtain other employment”.
The Court found that terminated employees are entitled to consider their own interests, and will not be found to have failed to mitigate merely because they take some career risks that do not minimize the cost to their former employers.
To Deduct or not to Deduct?
The Court of Appeal noted that 20-months was the global assessment for damages made by the trial judge and that it was inclusive of the employee’s statutory entitlements. Statutory entitlements under the Act are not subject to mitigation because they are not damages; rather, they are owed in any event.
Moreover, the Court of Appeal noted that it did not need to determine which portion of the income had been made during the statutory notice period, as it declined to treat any of the income as mitigation income. The employee had earned part-time income as a cashier at Sobey’s while she had been working full time for PJ-M2R.
The Court found that to be considered mitigation income, employment must be mutually exclusive with the performance of an employee’s former contract. As such, the Court held as follows at paragraph 140:
Therefore, if an employee has committed herself to full-time employment with one employer, but her employment contract permits for simultaneous employment with another employer, and the first employer terminates her without notice, any income from the second employer that she could have earned while continuing with the first is not deductible from her damages.
The employee in this case was working both jobs simultaneously before she was dismissed. However, it is possible that courts in Ontario will apply this principle even where employees obtain new employment after termination, so long as the new employment could feasibly have supplemented their previous job’s income.
The Court also suggested that where a dismissed employee’s income is substantial enough to be more than merely supplemental, it may be proper to consider which portion could still be seen as supplemental, and which portion amounts to mitigation income, and to treat the two amounts separately. This novel analytical framework may unduly complicate notice period assessments in the future. This case may signal that the courts in Ontario are becoming even more generous toward employees regarding their duty to mitigate.