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Frequently Asked Questions

MITIGATION FOR EMPLOYERS

When you terminate someone’s employment, the law is fairly clear that you are responsible for keeping them ‘whole’ until they find new work. That means that they should be continuing to earn what they would have earned had they remained in your employment, until they are able to find new work elsewhere.

For employees, though, there is a significant catch. While an employer is responsible for keeping an employee whole, an employee cannot sit idly by and collect. Employees are responsible for mitigating their losses, in other words earning replacement income, and this can significantly impact their eligibility for severance.

We wanted to share with you some of the top questions that we get from clients about mitigation.

What is an employee’s responsibility to mitigate?

In courts across Canada, judges have recognized the responsibility of both employers and employees when it comes to termination. Employers must keep employees whole, but employees must keep looking for work, which is known as the duty to mitigate. This duty to mitigate is not unique to employment law – in most any civil claim for damages plaintiffs are required to effectively ‘cut their losses,’ and they should not be able to recover losses that could have been avoided. The unique twist to employment law though is that the ‘duty’ actually falls on the employer’s shoulders to prove that the employee has failed to take sufficient steps to find new work and minimize their losses. 

There is also an important distinction here between lump sum and salary continuance payments. If you and the employee agree to a lump sum amount, they are essentially free after the deal is done to do what they wish. They could choose to retire, or start a new job the next week, and neither would make much difference. If the employee is paid out on a salary continuance though (and there is a ‘claw back’ in place reducing your payment obligations if they find new work), then the onus is on them to keep looking for replacement income.

When does an employee need to begin looking for work?

In our office we often have clients calling us as they are driving home from their termination meeting, and naturally they are in a mix of emotional states. We usually advise them to go home, take a few breaths, let everything sink in, and to call us the next day. 

The guiding principle when it comes to mitigation should be a reasonable approach. Some employees may rush home ready for action – jumping quickly on their computer to start sending out resumes. Others are often feeling incredibly wounded by the loss, and need a few days to let everything sink in. At that point they’ll be in no shape to look for work successfully anyway. You may have also set the employee up with outplacement services, which can take several weeks to whip their resume into shape before they are ready to apply broadly.

Remember that reasonable approach. If an employee doesn’t start looking in the first week or two, that likely won’t be held against them. If they’ve done no searching for six months however, that’s definitely a different story. 

Am I allowed to inquire about a former employee’s job search?

Absolutely! This is something that your lawyers will discuss with you as you move through the litigation process.

If the employee had retained a lawyer, that lawyer likely advised them to keep track of their job search including a log of every interview, follow-up, and any offers received. As the employee is required to keep looking, we can regularly request updates on their mitigation efforts while we negotiate a resolution. If the employee is not making valid efforts to find new work, we will make very clear with their lawyer how that would look to a judge should the matter proceed to litigation. 

As a matter of practice, employees are not legally obligated to advise when they have found new work unless it is specifically written in as a condition of their salary continuance. That is why the responsibility is on us to keep asking, and to make sure that you are getting the whole picture before making any decisions. 

What happens if the former employee finds new work?

Your former employee finding new work is great news, and can significantly lower your severance obligations. If you have had the employee on a salary continuance arrangement then you have already likely implemented a ‘claw back,’ where once the employee finds replacement income then they are only entitled to a percentage (usually 50%) of whatever amount that remains owing. The law recognizes that they should not be in a windfall position, rather just kept financially stable until they are ‘back on their feet.’

If you are negotiating a settlement, however, a new job could significantly change what you are willing to offer. Hypothetically, if the employee’s lawyer is pushing for a 10-month payment in lump sum, but the employee finds a new job within three, that 10 months is no longer representative of how long it would take them to find new work. This is usually accounted for in negotiations, but even if the case goes before a judge, the court will assess the employee’s mitigation efforts and account for mitigation income when calculating their damages. 

What if the former employee decides to start their own business? Can that business compete with mine directly?

This situation comes up often, as some employees will use their dismissal as a cue to start their own venture instead of looking for new work. Naturally this can lead to mixed results, and so the law treats income from self-employment similarly to income earned from traditional employment in these cases. If the income is substantial enough to replace one’s previous salary, that is substantial mitigation income. If, however, the income earned is significantly lower, it likely will not count against the employee’s entitlement to severance pay. 

The other things to look out for though are any non-competition and non-solicitation agreements that may have been included in that employee’s contract. These clauses can be hard to uphold, as courts take a strong view that former employees should be allowed to keep earning a living. However, it may be perfectly reasonable to require a former employee not to open a competing business in the exact same neighborhood for 6 months after their employment ends. It is also reasonable to protect confidential business information, or to have a clause in the employment contract not to solicit your customers or employees. If the employee is directly poaching employees, or you have evidence that they may have stolen trade secrets, let’s discuss your options and how they may factor into settlement negotiations. 

Can I wait a few months before paying out to see if they find anything?

If you fail to pay anything beyond the employee’s minimum legal entitlements under the employment standards act then the employee will likely consult with a lawyer, and if their demands for increased funds are not met then they will more than likely commence legal action. Negotiations can always continue even while a lawsuit is in process. Some employers will continue paying an employee through this negotiation period, knowing that the amount will be deducted from any settlement later, and other employers will drive a hard line to await some sort of judgment from a court. 

With regard to mitigation, the courts have historically taken three separate approaches. One is the contingency approach, where the court will incorporate some sort of contingency amount for the employee finding new work if judgment is rendered during the reasonable notice period. Another common approach is known as the ‘trust and accounting’ approach, where the court will award a larger amount but also order a trust, so that if the employee does find work within that time then they are required to account for any money earned after they start working. A third option is a partial summary judgment, where a court may award a small amount up front and then revisit the issue once the reasonable notice period has run out.

In short, you can consider a ‘wait and see’ approach, but you’ll also be working closely with your lawyer who can advise you on the prospects of success in court and the advantages of a negotiated settlement, as well as how to be strategic in your approach.

Am I required to help my employee find work?

No, you are not required to do this, but it can definitely be helpful.

Not all terminations are a result of bad blood, and there are many instances where an employee may be a great worker but you could simply not keep them on for one reason or another. While employers should generally consider writing at least some form of reference letter upon termination, for a great employee you may be willing to go the extra mile and connect them with other contacts in your industry who may be hiring.

This is helpful, but also not entirely selfless. If you are able to help an employee secure new work quickly, it can lessen the amount of time that they are out of work in which you would owe severance pay. If however the employee was less than ideal, still keep an eye on those industry job postings – it can help prove your case later that there was plenty of other work available. We also recommend keeping your own log if you see postings from within the industry, and periodically sending it our way. We can forward that log onto the employee’s lawyer to help boost their job search, or can later use that against the employee if they have not made reasonable efforts to apply for available positions. 

What happens if they never find anything – do I need to keep paying forever?

The short answer is no – there is no law that says that you need to pay a former employee indefinitely. If they are unable to find anything though, it may lead to a longer notice period.

The legal threshold revolves around how long it would reasonably take a person in similar circumstances (of similar age, experience, same nature of work, in a similar job market) to find comparable employment. There is no exact science to determine this length of time. There is, however, a great deal of judge-made law on which the courts will assess what the reasonable notice period should be. While that number has climbed in recent years to account for older employees who may have been in a single workplace for several decades, it still rarely goes beyond 24 months, and even those cases are exceptional circumstances.

Remember, a well-written and frequently reviewed employment contract can help limit these payment obligations, and can reduce a period of two years or more down to a matter of weeks. 

Does an employee need to mitigate at the end of a fixed term contract?

No, they do not. A fixed term contract is a contract with a pre-set expiry date, which can run for several months to even several years. When an employee signs that contract, they enter into the agreement with advanced notice of their end date, and a knowledge that they will need to start looking for work when the contract is complete.

The law changes, however, if an employee is let go before the end of their fixed term contract. When that happens, there is judge-made law from various provinces stating that the employer will owe the former employee money from the entire duration of the contract, and the employee would have no obligation in that case to mitigate. While fixed-term contracts may look enticing, they can actually be far more expensive in the long run. 

If you have any other questions, our team is available to help you as needed. Our goal is to provide you with cost-effective, strategic advice to help you handle your employment law matter.

Contact us today.

Employment Lawyers - Rudner Law
Alternative Dispute Resolution Rudner Law

Rudner Law
15 Allstate Parkway
Suite 600
Markham, ON
L3R 5B4

Phone: 416-864-8500
Text: 416-864-8500

Email: info@rudnerlaw.ca

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