I am Nadia Zaman, Associate at Rudner Law, and this video is about mitigation.
As discussed in our video on dismissals without cause, under Canadian law, non-unionized employees can be let go at any time for almost any reason – and assuming there is no breach of human rights or other claim, the only question is: is the employee getting the notice and/or severance that they are entitled to.
If the employee is entitled to reasonable notice under the common law, then the employee has a duty to mitigate their damages, which means that they have a duty to take reasonable steps to find comparable employment.
This is because reasonable notice is supposed to be a bridge to an employee’s next job, and is not meant to be a windfall.
There are two possible implications of the duty to mitigate.
First, the court may reduce the entitlement to notice if the employee does NOT take reasonable steps to find new employment. This is why we always recommend our employee clients in this situation to document all their efforts – whether it’s networking, applying to jobs, or searching online. That way, if the employer alleges that the employee failed to take reasonable steps to find new employment, the employee can use their mitigation log as evidence.
Second, if the employee gets a new job, then her entitlement to notice will be reduced dollar for dollar from the income earned from the new employment – this may come as a surprise to many people.
When determining the amount of damages to award a dismissed employee, the court will first determine the reasonable notice period. For more information on assessing notice entitlements, watch our video on that topic.
Next, the court will calculate the damages suffered during the notice period by calculating the compensation and benefits that the employee would have earned during the notice period if she was not dismissed.
Then, if the court finds that the employee failed to make reasonable efforts to find new employment, the court may reduce her entitlement to notice. On the other hand, if the employee has found a new job, any employment income earned by the employee during the notice period will be deducted dollar for dollar from her entitlement to notice. For example, if a court awards the employee 10 months’ notice in the amount of $100,000 and the employee earned $40,000 from another job during that 10 month period, then the court’s final award to the employee would be $60,000.
Employees should also keep in mind that the duty to mitigate may or may not apply to contractual notice payments; this will largely depend on the wording of the contract itself.
Employers have the right to determine how pay in lieu of notice (typically referred to as severance) will be paid. There is no obligation to provide a lump sum in most cases. Employers should consider providing severance packages by way of salary and benefit continuance with a clawback, rather than by way of a lump sum payment, especially if the employer is of the view that the employee is likely to mitigate her damages relatively quickly. For example, the employer may offer to continue the employee’s salary and benefits for the earlier of 10 months and the date that she commences alternate employment; once she commences new work, the employer might provide the employee with 50% of the remaining balance. This is why if and when a severance package is offered by way of a lump sum payment, it is usually discounted to account for the fact that the employee has no obligation to mitigate.
As a result, the employee’s duty to mitigate can be a very important consideration when negotiating a severance package with the employer. For example, if the employee expects to find new work soon, then pursuing a severance package for 18 months instead of a 16 month period may be a waste of time.
We always recommend both our employer and employee clients to seek legal advice in order to ensure that they are meeting their obligations and getting what they are entitled to. We regularly assist our employer clients by providing strategies and options with respect to dismissals and helping them navigate through the process. Similarly, we regularly assist our employee clients by reviewing their severance packages and by helping them negotiate better packages with their employer.