THE EMPLOYERS' EDGE
Employee Still Obligated to Mitigate Damages Even Where There is a Contractual Notice Period
Bowes v. Goss Power Products confirms that a written employment agreement with a defined notice period does not relieve a dismissed employee of their duty to mitigate or entitle them to a lump sum notice payment unless there is specific language to the contrary in the agreement.
The Principle of Mitigation
In a wrongful dismissal action an employee who is dismissed is required to undertake reasonable and diligent efforts to secure alternate employment and generate earnings to replace lost salary, a principal referred to as mitigation. As such, if an employee secures employment during the notice period they will have mitigated their losses and the pay in lieu of notice owing to them by the former employer will likely be reduced.
Mr. Bowes entered into a written employment contract with Goss Power Products (“Goss”) on September 26, 2007 which provided that he would be entitled to six (6) months’ notice where his employment was terminated without cause prior to the completion of forty-eight (48) months of service. Bowes was dismissed without cause prior to completing forty-eight (48) months with Goss on April 13, 2011. Shortly thereafter, Bowes found employment with a new employer earning comparable salary. Notwithstanding his successful mitigation, Bowes commenced a wrongful dismissal action against Goss and went before Justice Whitaker in July of 2011 arguing that he ought to have been paid out the six (6) months of notice referred to in his employment contract in one lump sum at the time of dismissal and that he was not required to mitigate his losses.
Justice Whitaker, however, determined that Bowes was neither entitled to a lump sum nor relieved of his duty to mitigate. Justice Whitaker stated “the mere fact that the parties have agreed on the period of notice does not mean that the obligation to mitigate is ousted by agreement.” In fact, he found it crucial to determine the intent of the parties when determining the mitigation and lump sum payment issues. He recognized that the employment contract went on to address a variety of points like the scope of the release, the length of the reasonable notice and the calculation for wages owing during the period of reasonable notice. As such, if the parties wished they could have inserted a sentence stipulating that Bowes had no duty to mitigate and/or that he was to be paid notice in a lump sum. Essentially, from the language of the contract it was not possible to find that it was the intent of the parties to relieve Bowes of his duty to mitigate or to pay him a lump sum.
Lessons for Employers
The employee’s duty to mitigate is a general principle of contract law that can only be relieved by specific language in the employment agreement. Similarly, a lump sum payment for notice will be required if it is stipulated by choice language. It is worthy to note, however, that some case law suggests a lump sum payment will also be implied if the employment contract specifically relieves the employee of his/her duty to mitigate.
Bowes v. Goss Power Products demonstrates the benefit of properly drafted employment agreements, the relatively strict duty of the employee to mitigate, the option of paying notice in installments and the importance of understanding the language contained in an employment agreement. Once again, employment contracts prove to be effective tools for minimizing employer liability and clearly defining the rights and obligations of the parties at the time the employment relationship is struck.
The CCP team has considerable experience assisting employers with the negotiation, drafting, revision and interpretation of employment agreements. Consider consulting the lawyers at CCP if you are considering using employment agreements in your workplace or require a legal interpretation of an existing agreement.
Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.