In a recent decision, the Ontario Court of Appeal concluded that an employee is not under a duty to mitigate his or her losses when terminated from a fixed term of employment.
In Howard v. Benson Group Inc. (The Benson Group Inc.), an employee entered into a five-year contract. The employer dismissed the employee without cause after some 23 months. The contract had provisions for early termination for cause or on resignation by the employee – those provisions were not at issue. The contract also had a term stating that “Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario” – both the trial judge and the Court of Appeal concluded that this clause was vague and, therefore, of no assistance to the employer. Given that this was a fixed-term contract, the employee was entitled to payment for the value of his compensation to the end of the contract.
The more controversial issue in this case was whether the employee was under a duty to mitigate his losses by searching for alternative employment – and whether there was a corresponding reduction in damages from any income he earned from his new employment. In 2012, the Court of Appeal concluded in Bowes v. Goss Power Products Ltd. that where a contract of employment stipulates the value of the payment due to an employee on dismissal, that stipulated payment is not reduced for mitigation earnings. The Court of Appeal decided that Bowes applied to fixed-term contracts as well, stating that there was no difference between a contractually fixed term of notice and a contract for a fixed term.
The language used by the Court of Appeal is particularly interesting. The Court stated (with my emphasis added):
There is no reason to depart from the rule in Bowes that there is no duty to mitigate where the contract specifies the penalty for early termination. It does not matter whether the penalty is specified expressly, as in Bowes, or is by default the wages and benefits for the unexpired term of the contract, as in the case of fixed term contracts generally.
It is interesting to see the Court of Appeal refer to the duty to comply with a contract of employment as a “penalty”. While many employers may quietly refer to severance as a “penalty”, this is the first time that the Court of Appeal has agreed with that characterization. How is a fixed amount of severance any more a “penalty” than an implied term of reasonable notice?
Bold prediction (note, however, I am almost always wrong in my predictions): within the next five years, the Court of Appeal is going to eliminate the duty to mitigate entirely from employment law. The Court of Appeal is going to eventually be persuaded by the logic that there is no contractual difference between an express and an implied term: if mitigation does not apply to express terms, there is little justification for it to apply to implied terms.
