We’ve talked a lot about wrongful dismissal and constructive dismissal over the years and we have touched on the fact that employees who are wrongfully terminated must make reasonable efforts to mitigate their damages.
The law regarding employee mitigation has recently been re-examined and clarified by the Court of Appeal in Brake v. PJ-M2R Restaurant Inc. and it’s important to look at this case in some depth because of its potentially negative effect on any employer seeking to have the amount of wrongful dismissal damages lowered based on mitigation.
The Brake Case
In Brake, a long-time McDonald’s employee sued the franchise for wrongful dismissal and won. The court awarded her 20 months of notice (approximately $105,000). McDonald’s argued that Ms. Brake mitigated her damages by approximately $46,000 and that these amounts should be deducted from the damages award. The following were Ms. Brake’s mitigation efforts:
- taking an inferior position that was offered to her within McDonalds;
- an existing part-time position as a cashier at Sobey’s grocery store;
- an associate position at Tim Horton’s;
- failed attempts at starting her own babysitting and cleaning services;
- unsuccessful applications for several store manager and supervisor positions in the retail secotr;
- work in a cashier position at Home Depot.
At trial, the judge held that none of the above mitigation efforts should be deducted from the damages awarded to Ms. Break. McDonald’s appealed but the Court of Appeal sided with the employee and took the opportunity to examine what mitigation efforts should or should not be deducted from damages awarded for wrongful dismissal.
The Duty to Mitigate
Employees who choose to file a claim against their employer for wrongful or constructive dismissal will always have their mitigation efforts examined by the court. This is because the employee has a duty to mitigate their damages by taking reasonable steps to find comparable employment and to accept that employment if/when it becomes available.
Comparable employment is defined by Feldman J.A. in the Brake decision as being a “position that is reasonably comparable in salary and responsibility to the one from which she was wrongfully dismissed”. An employee’s mitigation efforts need not be perfect, but the employee must be able to show that effort was made to mitigate.
McDonalds argued that Ms. Brake’s failed attempts at starting her own businesses and her unsuccessful applications to managerial positions in retail amounted to defective mitigation efforts. The Court disagreed. They said, “there is no magic formula that an employee must follow when making reasonable efforts [to mitigate]” and “a terminated employee is entitled to consider her own long-term interests, so she will not fail to mitigate merely because she chooses to take some career risks that might not minimize the compensation that her former employer will owe to her… Thus the fact that Ms. Brake did not apply for other restaurant management positions does not mean that she did not make reasonable efforts to mitigate”.
The Ontario Employment Standards Act (the ESA) provides that all employees are owed a minimum amount of notice or pay in lieu of notice when they are terminated without cause. Some employees are also entitled to severance pay. These are the employee’s minimum statutory entitlements.
Employees who do not have proper written contracts are not only owed their minimum statutory entitlements but also common law entitlements (up to a maximum of 26 months).
During their statutory entitlements, employees are not required to mitigate their damages, regardless of whether they have a contract or not. The employer must pay all of the statutory entitlements even if the employee finds comparable or better employment the day after being terminated and mitigates all of their damages.
The Court of Appeal found that income derived from Ms. Brake’s part time position at Home Depot as well as part of her income at Sobey’s was earned during her statutory entitlement period and those amounts were therefore not deductible from her award of damages.
The Brake case confirmed what has already been settled law in Ontario: that Employment Insurance (EI) benefits are not considered part of mitigation and cannot be deducted from an award of damages in favour of the employee.
The reasoning behind this appears to be that the wrongfully dismissed employee was put in the position to have to apply and use their EI benefits due to the employer’s wrongdoing; it would therefore be unfair to allow the employer to deduct that amount from the amount they owe to the employee.
Ms. Brake received approximately $7,000 in EI benefits during the notice period, none of which was to be deducted from her award of damages.
Continued Employment (Same Employer)
McDonalds offered Ms. Brake an inferior position within McDonalds. She refused to accept the inferior position. McDonalds argued that by failing to take the inferior position, Ms. Brake failed to mitigate her damages. The Court disagreed.
Where an employer offers an employee a chance to mitigate their damages by accepting a different position within the same company, the central issue is whether a reasonable person in the employee’s position would have accepted the offer. However, the employee is not obligated to mitigate by working in an atmosphere of hostility, embarrassment or humiliation.
Ms. Brake, had she accepted the inferior position, would have been humiliated and embarrassed by having to work under younger employees who she had trained. The Court concluded that Ms. Brake couldn’t have been expected to continue with McDonalds given the humiliating / embarrassing circumstances.
At trial, the judge did not deduct Ms. Brake’s Sobey’s and Home Depot income from her awards damages and did not give justification other than alluding to the fact that “…the cashier position… [is] so substantially inferior to the managerial position she held with [McDonalds] that the former does not diminish the loss of the latter”.
Gillese J.A. (with Pepall J.A. concurring), of the Court of Appeal agreed with the trial judge’s outcome but not with the reasoning. They said, “to the extent that the trial judge was suggesting that the court did not need to consider whether income received from a job that was inferior to the one from which the employee was dismissed was mitigation income, I respectfully disagree. That approach does not accord with the principal that employment income earned during the notice period is generally to be treated as mitigation of loss.”
Gillese J.A. gave very succinct reasoning behind why Ms. Brake’s income from part-time employment outside of the statutory entitlement period should not be considered: “… 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.”
Ms. Brake worked a second job with Sobey’s while working full-time with McDonalds – it was therefore obvious that her work for Sobey’s and her work for McDonalds were not mutually exclusive. On this basis, the Court refused to deduct her Sobey’s income from the damages awarded. As for the Home Depot income, the Court did not find that the work was supplementary (because the evidence was “unclear”) but they did say that the amount was so modest ($600) that they would not deduct it from the damages.
McDonalds did not make an argument about whether Ms. Brake’s Sobey’s income exceeded an amount that could reasonably be considered as “supplementary” and that argument was therefore not considered by the court. However, the Court did leave an opening to this argument by saying they would “leave it for another day”.
Interestingly, Feldman J.A., who concurred with the rest of the Court of Appeal’s reasoning, did disagree on the point of “inferior position” and stated that the Home Depot cashier position Ms. Brake held after being terminated from McDonalds was so substantially inferior to her managerial position at McDonalds that the income earned from it should not be deducted from her damages for wrongful dismissal (regardless of whether it was mutually exclusive with her position at McDonalds).
Feldman J.A. came to this conclusion based on the fact that if a wrongfully dismissed employee can only find a position that is not comparable in either salary or responsibility, then she is entitled to turn it down, and if she does, the amount she could have earned is not deducted from her damages. So, “it follows… that where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.”
If you are an employer who is facing wrongful termination damages, you need to consider the issue of mitigation carefully. As we have seen from the Brake case, not all employment income will be considered deductible mitigation income.
In light of Brake, you will need to ask yourself a few crucial questions, including:
- was the mitigation effort reasonable?
- when was the mitigation income earned (i.e. during the statutory entitlement period)?
- is the income part of EI benefits?
- if the employer offered an inferior position within the same company, would the reasonable person accept that position, having regard to whether acceptance of that position would put the employee in an atmosphere of hostility, embarrassment or humiliation?
- is the employee’s income derived from a position that could have been held while the employee worked for the employer (i.e. was the position “supplementary” in nature)? If so, does the amount earned from the position exceed an amount that could reasonably be considered “supplementary” income?
- was the employment income earned from an inferior position?