Tuesday, October 9, 2012

No Duty to Mitigate Where Notice Period Fixed

In Bowes v. Goss Power Products Ltd., a unanimous panel of five judges of the Ontario Court of Appeal confirmed that an employee has no duty to mitigate damages (unless the employment agreement stipulates such obligation) when the employment agreement fixes the notice period or termination pay in lieu of notice.

In this case, the employee signed an employment agreement for the position of executive vice president of sales and marketing for the employer. The agreement fixed his entitlement to six months’ notice or pay in lieu of notice if the employee’s employment was terminated. The agreement was silent on mitigation.

On April 13, 2011, the employer terminated the employee’s employment without cause and advised that he was entitled to salary continuance for the contractually fixed six month period. Shortly after termination, the employee secured a new job with an equivalent salary. The employer took the position that the employee had mitigated his damages and was only entitled to receive the minimum statutory entitlement under the Employment Standards Act.  The  employee disagreed and commenced an application in the Ontario Superior Court of Justice seeking a declaration that he was entitled to the full six months base salary in accordance with the agreement and that such payment was not subject to a duty to mitigate.

The applications judge held that simply because the parties agreed on the period of reasonable notice did not mean that the obligation to mitigate is ousted by agreement.

The Court of Appeal allowed the appeal. The Court held that by contracting for a fixed sum of termination/severance pay, the parties displaced the common law regime thereby contracting out of the Bardal “reasonable notice” approach or damages in lieu of notice.

The Court of Appeal gave the following reasons to support its conclusion:

a)  the duty to mitigate is not applicable if the damages are either liquidated or a contractual sum;

b)  It would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages and then allow the employer to later seek to obtain a lower amount at the expense of the employee by raising an issue of mitigation that was not mentioned in the employment agreement;

c)  It is counter-intuitive for the parties to contract for certainty and finality, and yet leave mitigation as a live issue with the uncertainty, risk and litigation that would ensue as a consequence; and

d)  A broad release in an employment agreement demonstrates an intention to avoid resort to the courts, confirms a desire for finality, and bolsters a finding that the parties intended that mitigation would not be required unless the agreement expressly stipulates to the contrary.

Bowes v. Goss Power Products Ltd., 2012 ONCA 425



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