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Mitigation Income

Damages | Mitigation

In claims for wrongful dismissal, it is well established that a dismissed employee’s damages are subject to mitigation. That means that the dismissed employee must make reasonable efforts to obtain new employment, and any income they earn during the common law notice period is to be deducted from the damages owing from their former employer. This makes sense in the context of the purpose of notice or “severance”; it is to tide the employee until they have found new work.

However, the 2017 Court of Appeal decision of Brake v. PJ-M2R Restaurant Inc. demonstrates that income earned during the common law notice period is not always deducted, and that there are exceptions to the general rule.

The Trial Decision

In Brake, the trial judge found that Ms. Brake was constructively dismissed from her employment as a result of a demotion imposed by the employer, and awarded a common law notice period of 20 months. During the notice period, Ms. Brake earned income from positions she obtained with three other employers, and she received employment insurance (“EI”) benefits. However, the trial judge found that none of this income should be deducted from the damages awarded to Ms. Brake.

The employer appealed the trial decision. The Court of Appeal dismissed the employer’s appeal in its entirety. The Court of Appeal’s analysis of the mitigation issue was particularly interesting and is summarized below.

The Appeal

The Court of Appeal found that in a wrongful dismissal action, an employer is generally entitled to a deduction for income earned by the dismissed employee from other sources during the common law notice period. However, in this case, the Court of Appeal agreed with the trial judge’s decision to not deduct the income that Ms. Brake earned during the notice period from the damages that were awarded to her. The Court of Appeal found that such income did not constitute “amounts received in mitigation of loss”, and therefore should not be deducted.

In analyzing this issue, the Court of Appeal looked at two different periods:

  1. the period of statutory notice, and
  2. the balance of the common law notice period.

The Period of Statutory Notice

The trial judge’s award of 20 months of notice included Ms. Brake’s statutory entitlement to termination pay and severance pay under the Employment Standards Act, 2000 as well as her entitlement to common law notice.

Although the Court of Appeal did not determine exactly when Ms. Brake’s statutory entitlement period ended, as there was a dispute about exactly how long her employment lasted, the Court found that the employment income she received in 2012 and 2013 was within the statutory entitlement period. Therefore, the Court reiterated the rule that statutory entitlements are not subject to mitigation, and accordingly, any employment income that Ms. Brake earned during her statutory entitlement period is not deductible as mitigation income.

The Balance of the Notice Period

The Court then analyzed the balance of the notice period. While the Court accepted that Ms. Brake earned employment income from Sobeys during that period, it found that such income was not mutually exclusive from the income she was earning from her former employer. The Court stated the following regarding that issue:

“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 Court found that if Ms. Brake had not been constructively dismissed from her employment, she could have continued to supplement her income through part-time work at Sobeys. Therefore, her income from Sobeys did not constitute mitigation income and was not to be deducted from her damages.

In reaching this conclusion, the Court cited a decision from the Saskatchewan Court of Appeal, in which a dismissed employee taught an evening class in economics during the notice period. In that case, the Court found that the employee “could have taught this evening course if he had remained in the respondent’s employ”, and therefore did not deduct his earnings from the damages awarded to him.

The Court of Appeal’s decision in Brake has been cited in several subsequent Court decisions in support of the proposition that income earned during the notice period is not deductible from wrongful dismissal damages when such income was not mutually exclusive from the income that was earned from the former employer.

Employment Insurance Benefits

The final category of income that Ms. Brake received during the notice period was EI benefits. The Court found that the law is clear that EI benefits are not to be deducted from damages awarded for wrongful dismissal. Although Ms. Brake earned $7,150 from EI benefits during the notice period, these amounts were not to be deducted from the damages awarded against her former employer.

However, it is important to note that there may be repayment obligations of EI benefits received during the notice period, so that an employee does not earn “double recovery”.

Additional Reasons: Vastly Inferior Jobs May Not Count as Mitigation.

The trial judge gave an additional reason for declining to make a deduction on the damages owing to Ms. Brake: that her replacement employment at Home Depot was “so substantially inferior to the managerial position she held with the Defendant that the former does not diminish the loss of the latter.”

In Justice Feldman’s concurring opinion for the Court of Appeal, she endorsed the trial judge’s statement, and found that since Ms. Brake did not obtain a managerial position that was reasonably comparable to the one that she had with her former employer, then the income she earned with an “inferior” replacement employment position should not be deducted from the damages owing to her.

As Stuart previously wrote about, this is fairly controversial reasoning, and it is not clear that this reasoning will be adopted in future Court decisions.

However, the other Court of Appeal judges did not adopt Justice Feldman’s reasoning, and for different reasons still came to the same conclusion that the income should not be deducted from Ms. Brake’s damages.

Conclusion

As the Brake decision demonstrates, the damages owing to a dismissed employee are not always easy to determine. What may at first appear to be a simple exercise, may in fact involve complex legal issues that could significantly impact an employee’s entitlements.

Whether you are an employer that is a defendant in a lawsuit for wrongful dismissal, or an employee who is seeking to bring a claim against their former employer, our firm can assist you with your legal questions and strategy. If you have any questions about your situation or if you would like to get legal advice, please feel free to contact us.

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