Under Canadian law, a terminated employee is required to make reasonable and diligent effort to secure re-employment after a dismissal. In wrongful dismissal actions, damages may be reduced if such efforts are not demonstrated.
The duty to seek re-employment relates to the employee's duty to mitigate damages. The employer's liability to pay damages for wrongful dismissal during a notice period may be reduced by any income the employee receives (or ought reasonably to have received) during the notice period
Having said that, when does a wrongfully-dismissed employee have a duty to mitigate damages by accepting an offer of re-employment by his or her former employer?
Until recently, the answer to this question was a simple, "only rarely."
According to a Supreme Court of Canada decision released May 1, 2008, however, such mitigation may now be required in Canada more frequently.
The Court has imposed a duty upon dismissed employees to accept such offers of re-employment when it is "objectively reasonable" to do so.
With a 7-1 decision last week in Evans v. Teamsters Local Union No. 31, the Court upheld a Yukon Court of Appeal ruling that overturned a Yukon trial court's award of 24 months' pay in lieu of notice to Donald Evans, a Whitehorse Teamsters executive with 23 years of service.
In dismissing Mr. Evans' appeal, the Supreme Court found that Mr. Evans had failed to mitigate his damages, after he refused an offer of time-limited re-employment by the union in a substantially similar position - even though the union's offer was advanced some five months after dismissal.
Mr. Justice Michel Bastarache, writing for the majority, stated:
In my view, the courts have correctly determined that in some circumstances it will be necessary for a dismissed employee to mitigate his or her damages by returning to work for the same employer. Assuming there are no barriers to re-employment (potential barriers to be discussed below), requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself. The notice period is meant to provide employees with sufficient opportunity to seek new employment and arrange their personal affairs, and employers who provide sufficient working notice are not required to pay an employee just because they have chosen to terminate the contract. Where notice is not given, the employer is required to pay damages in lieu of notice, but that requirement is subject to the employee making a reasonable effort to mitigate the damages by seeking an alternate source of income.
...I do not mean to suggest with the above analysis that an employee should always be required to return to work for the dismissing employer and my qualification that this should only occur where there are no barriers to re-employment is significant. This Court has held that the employer bears the onus of demonstrating both that an employee has failed to make reasonable efforts to find work and that work could have been found (Red Deer College v. Michaels, 1975 CanLII 15 (S.C.C.),  2 S.C.R. 324). Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so “[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious” (Mifsud v. MacMillan Bathurst Inc. 1989 CanLII 260 (ON C.A.), (1989), 70 O.R. (2d) 701). In Cox, the British Columbia Court of Appeal held that other relevant factors include the history and nature of the employment, whether or not the employee has commenced litigation, and whether the offer of re-employment was made while the employee was still working for the employer or only after he or she had already left (paras. 12-18). In my view, the foregoing elements all underline the importance of a multi-factored and contextual analysis. The critical element is that an employee “not [be] obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation” (Farquhar, at p. 94), and it is that factor which must be at the forefront of the inquiry into what is reasonable. Thus, although an objective standard must be used to evaluate whether a reasonable person in the employee’s position would have accepted the employer’s offer (Reibl v. Hughes, 1980 CanLII 23 (S.C.C.),  2 S.C.R. 880), it is extremely important that the non-tangible elements of the situation — including work atmosphere, stigma and loss of dignity, as well as nature and conditions of employment, the tangible elements — be included in the evaluation.
...I note that the nature of this inquiry increases the likelihood that individuals who are dismissed as a result of a change to their position (motivated, for example, by legitimate business needs rather than by concerns about performance) will be required to mitigate by returning to the same employer more often than those employees who are terminated for some other reason. This is not, however, because these individuals have been constructively dismissed rather than wrongfully dismissed, but rather because the circumstances surrounding the termination of their contract may be far less personal than when dismissal relates more directly to the individuals themselves. This point is illustrated by Michaud in which a bank executive was constructively dismissed as a result of an organizational restructuring. The evidence showed that the bank offered the employee another executive position and was anxious to have him continue working for them. Importantly, there was no evidence that the relationship between the employee and the bank was acrimonious or that he would suffer any humiliation or loss of dignity by returning to work while he looked for new employment. As a result, mitigation was required.
The Court's decision, while a clear departure from the prior law on mitigation, may not ultimately reflect a wholly seismic shift in policy. On its face, it imposes significant constraints on the duty to accept re-employment where a workplace atmosphere is hostile, acrimonious or undignified.
While the long-term reach of Evans is not yet clear, employers' counsel may nonetheless consider immediately leveraging the ruling by advising employers to advance "strategic"offers of re-employment as a shield against wrongful dismissal actions by terminated employees.
The Supreme Court's ruling appears to impose a heavy, practical burden on a wrongfully terminated employee to demonstrate that a refusal to accept such an offer of re-employment after dismissal was objectively reasonable because of provable barriers to re-employment.
In establishing this objective test, the Court necessarily shifts attention from the employer's misconduct in dismissing an employee without cause, and instead, significantly increases focus on the the employee's after-dismissal "reasonableness."
This approach appears to largely negate the Court's own seminal statements in Wallace v. United Grain Growers Ltd.:
The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that result from dismissal. In Machtinger, supra, it was noted that the manner in which employment can be terminated is equally important to an individual's identity as the work itself (at p. 1002). By way of expanding upon this statement, I note that the loss of one's job is always a traumatic event. However, when termination is accompanied by acts of bad faith in the manner of discharge, the results can be especially devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period.
...The obligation of good faith and fair dealing is incapable of precise definition. However, at a minimum, I believe that in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.
...It has long been accepted that a dismissed employee is not entitled to compensation for injuries flowing from the fact of the dismissal itself: see e.g. Addis, supra. Thus, although the loss of a job is very often the cause of injured feelings and emotional upset, the law does not recognize these as compensable losses. However, where an employee can establish that an employer engaged in bad faith conduct or unfair dealing in the course of dismissal, injuries such as humiliation, embarrassment and damage to one’s sense of self-worth and self-esteem might all be worthy of compensation depending upon the circumstances of the case. In these situations, compensation does not flow from the fact of dismissal itself, but rather from the manner in which the dismissal was effected by the employer.
... Often the intangible injuries caused by bad faith conduct or unfair dealing on dismissal will lead to difficulties in finding alternative employment, a tangible loss which the Court of Appeal rightly recognized as warranting an addition to the notice period. It is likely that the more unfair or in bad faith the manner of dismissal is the more this will have an effect on the ability of the dismissed employee to find new employment. However, in my view the intangible injuries are sufficient to merit compensation in and of themselves. I recognize that bad faith conduct which affects employment prospects may be worthy of considerably more compensation than that which does not, but in both cases damage has resulted that should be compensable.
...The law should be mindful of the acute vulnerability of terminated employees and ensure their protection by encouraging proper conduct and preventing all injurious losses which might flow from acts of bad faith or unfair dealing on dismissal, both tangible and intangible. I note that there may be those who would say that this approach imposes an onerous obligation on employers. I would respond simply by saying that I fail to see how it can be onerous to treat people fairly, reasonably, and decently at a time of trauma and despair. In my view, the reasonable person would expect such treatment. So should the law.
At the very least, Evans may operate as a countervailing balance to Wallace that levels the playing field of employment law litigation, by imposing an increasingly parallel duty of good faith and reasonableness on employers and employees alike at and following termination of employment.
Beyond that, Evans certainly increases the suspense regarding the Supreme Court's evolving attitude toward the Canadian workplace, as the nation awaits its important, pending ruling in Honda and Keays.
In a stinging, lone dissent in Evans, Madame Justice Rosalie Abella rejected the majority's factual conclusions as well as its articulation of an "objective test" of the reasonableness of this form of mitigation. She wrote:
Mr. Evans commenced a wrongful dismissal action against the Teamsters. After five months of negotiations, the Teamsters sent him a letter telling him that if he refused to come back to work for the balance of a 24-month work period, he would be fired. Again. At no time before sending this letter did the Teamsters ever indicate to Mr. Evans that he was entitled to 24 months’ notice, in the form of either working notice or pay in lieu of notice.
... I have had the benefit of reading the reasons of the majority. With respect, I do not share the view that the Court of Appeal was correct in concluding that the trial
judge made a legal error. Nor do I think the Court of Appeal was justified in reinterpreting the evidence and reversing the trial judge's factual findings, all of which were manifestly supported by the record.
...[Trial Judge Gower J.] ... found that the letter of May 23 was “entirely incapable of being interpreted as an offer of re-employment”. Rather, he found it to be a “demand which, if refused, would result in Mr. Evans’ termination” (para. 81). He held that it was not an unreasonable position for Mr. Evans to return to work if his termination letter was rescinded, based on Mr. Evans’ knowledge that the termination letter of Mr. Owens was rescinded.
He also found that it was reasonable for Mr. Evans to refuse the Teamsters’ demand to return to work on June 2. He gave nine reasons for this conclusion...
In my view, the result of the Court of Appeal’s decision is that the Teamsters have been permitted to unilaterally transform their unlawful treatment of Mr. Evans on January 2, which had entitled him to a considerable period of notice, into a lawful dismissal on June 2 which entitled him to no notice. With respect, this flies in the face not only of the law of wrongful dismissal, but also of the trial judge’s factual findings.
...On the other hand, when an employee is fired without cause and without reasonable notice, the dismissal is, at law, “wrongful”. The employee is immediately entitled to an action in damages. He or she has lost the job, period. That means, to use the language of Professor Fudge, that the employer has lost the “right of control” and the employee has lost the “open-ended duty of obedience” (p. 530).
...But even if one can assert that a wrongfully dismissed employee’s duty to mitigate may include returning to the workplace, I agree with Gower J. (and the existing jurisprudence) that it would only be in “the rare case” that such an expectation would be reasonable (para. 93). The rarity of expecting a dismissed employee to mitigate damages in the same workplace is already well recognized in the case of constructive dismissals.
...I do not see support for a “purely objective” test in these passages, but I do see support for two other propositions. The first is confirmation in Farquhar that re-employment will be a rare circumstance for a dismissed employee. The second is the direction in Forshaw that the duty to “act reasonably” in mitigating must be seen not just from the perspective of a reasonable person, but from the perspective of a “reasonable person in the dismissed employee’s position”.
....This latter observation in particular acknowledges that different employees will be differently affected by a dismissal, and are entitled to consideration being given to the reality of their own experience and reaction. A court clearly cannot ignore the objective reality, but neither can it disregard the employee’s subjective perceptions in assessing the reasonableness of the decision not to return to a workplace from which he or she has been unlawfully dismissed. Both objective and subjective factors are relevant in evaluating what a reasonable person in the position of the employee would do.
...Firing an employee without notice, then requiring him or her to return temporarily to work at his former workplace because the unlawful dismissal resulted in bleak employment prospects, has the perverse effect of requiring a wronged employee to ameliorate the wrongdoer’s damages, rather than the other way around.
Prior to this ruling, Canada's courts have not generally required a dismissed employee to mitigate damages by accepting an employer's offer of re-employment. It will be important to see whether the Evans decision will be interpreted by trial courts as reversing that long-established approach.
As a closing note, I'd be remiss if I overlooked the unfathomable irony of circumstances in which the Teamsters trade union has proven to be the driving force behind a Supreme Court of Canada decision that may, in time, prove to be a watershed in the erosion of workers' rights in Canada.
In Evans, a case apparently fueled and sustained by Teamsters political in-fighting, it is difficult not to conclude that union leadership became so blinded by a partisan desire to deny reasonable notice to a 23-year employee that it entirely lost sight of the blatantly adverse implications of its own legal arguments on its natural constituency - the very workers it is mandated to protect.
What a sad commentary that is on the state of Canada's trade union movement.
- Garry J. Wise, Toronto