Employers Can Be Responsible for Significant Mitigation Costs

mitigation of damages

We have previously written about the obligation placed on employees following dismissal to take reasonable steps to find replacement employment and, as a result, mitigate any damages they may have suffered as a result of their dismissal.

There are certain circumstances in which the duty to mitigate does not arise. The first is where there is a termination clause in an employee’s employment agreement which does not expressly require an employee to mitigate their damages during the applicable period of notice. In other words, the employer and the employee have agreed ahead of time that the employee will receive a certain separation package, and that the package will be paid to the employee regardless of whether or not they find new employment within the notice period. The second is with respect to an employee’s minimum statutory entitlements under employment standards legislation, including an employee’s entitlement to notice/Termination Pay and Severance Pay, which an employee is entitled to receive regardless of their mitigation efforts.

Aside from these circumstances, employees who are dismissed from their employment have a duty to mitigate their damages.

Frequently when parties are addressing the issue of mitigation following dismissal, the focus is on the employee’s efforts. In particular, the question is often whether or not an employee has satisfied their duty to mitigate by acting reasonably in seeking, and accepting, alternate employment. An employee’s failure to take reasonable steps to mitigate their damages can directly reduce the amount of damages they may otherwise have been entitled to arising from their wrongful dismissal.

However, an employee’s mitigation efforts can also give rise to expenses that, in some cases, can be directly passed on to the employer in addition to any damages the employee suffered as a result of their dismissal. In certain circumstances these expenses can be quite significant, as seen in the recent Ontario decision of Robinson v. H. J. Heinz Company of Canada LP, where the Defendant employer was ordered to pay the Plaintiff’s mitigation expenses totalling $45,010.32, as well as damages for wrongful dismissal over a 15 month reasonable notice period.

Background

We reviewed the Robinson case in detail in our recent blog post for First Reference Talks. The basic facts are as follows: the court found that the Plaintiff’s employment had been constructively dismissed as a result of significant changes made to her role following a merger. By serendipitous coincidence, the employee was offered employment with another company around the same time that it became clear that her employment with the employer was at an end. The new role did require her to accept a reduction in compensation, and to relocate to another city, but as a result of accepting the position the employee had no period of unemployment following her constructive dismissal.

As a direct result of accepting the new position, the employee incurred costs including:

  • $34,010.32 for expenses associated with the sale of her house in Toronto,
  • $3,500.00 for land transfer taxes, legal fees and related fees associated with the purchase of a new home in Southwestern Ontario; and
  • $7,500.00 for moving expenses.

In this case, there were unique circumstances that made the employee’s decision to relocate to mitigate her damages reasonable. The employee had clearly been induced to relocate to Toronto by the employer just prior to the merger to continue working in a new role. As a result, the Court found that it was “reasonably foreseeable that if the defendant breached their contract, the plaintiff’s damages would include the cost of relocating to a residence proximate to her new place of employment.”

The Court also considered the fact that accepting the new role constituted a substantial mitigation of her damages, reducing the employer’s potential exposure to damages overall. In that regard, the Court found that it would be “inequitable” to allow the employer to benefit from those mitigation efforts while denying the employee reimbursement for the costs of same.

The employer also attempted to argue that as the employee had sold her home in Toronto at a profit, the resulting capital gains essentially negated the cost of any expenses she had incurred. The Court found that the employee had made several improvements to her home in Toronto, which was at least part of the reason for the increased resale value. In addition, the general rise in real estate values not only impacted the sale price of the Toronto home, but also the purchase price of the new home. Again, the Court noted that it would be “unfair” to the employee to allow the employer to benefit from the improvements made by the employee, or to force the employee to bear the burden of the increased price of her replacement home due to the overall increase in the market.

Takeaways

It is possible for employees to recover expenses incurred as a result of their efforts to mitigate their damages. However, the employee must ensure that the steps they are taking are reasonable in the circumstances. In particular, it will not be reasonable in every situation for an employee to accept employment that requires them to uproot their life and relocate. Employees should speak with legal counsel before accepting new employment and incurring significant expenses in the process. We can help you to navigate these issues and maximize your recovery. If you are an employer, we can work with you to ensure that you understand your rights and obligations, so you don’t end up spending any more than you have to.

Employers should be cognisant of the potential for employees to recover mitigation expenses and that these expenses can be significant with the right set of facts. In particular where employers have asked employees to relocate to accept a role, they should anticipate that an employee may consider replacement employment that could require a subsequent move. This potential risk, and many others, can be addressed with a well drafted termination clause that clearly sets out an employee’s entitlements, and obligations, on dismissal.

Brittany Taylor

Since being called to the Ontario Bar in 2013, my practice has been dedicated to assisting both employers and employees to manage their workplaces. My approach to workplace issues is one that is pro-active and preventative. I take great satisfaction in assisting employees and employers to identify and deal with potential issues before they have an opportunity to evolve into serious headaches for both parties. I also take great pride in acting as a vigorous advocate on behalf of my clients, whether at the bargaining table or beyond to the trial stage.