Thursday, February 20, 2014

Mitigation - A Dismissed Employee's Continuing Obligation


It is a well founded principle in the law of contracts that once a breach occurs, a plaintiff has an obligation to minimize their damages. In bringing an action against a defendant for breach of contract, a plaintiff would not be allowed to "rack up" their losses and expect a large payout. Instead, a plaintiff must do whatever a prudent and responsible person ought to do to mitigate his or her losses.

Although a contract of employment is not like an ordinary commercial contract, an employee does have an obligation after dismissal to mitigate his/her losses.

Mitigation in the Employment Context

The leading decision on an employee's duty to mitigate the loss of his or her employment is Red Deer College v. Michaels, where the Supreme Court of Canada held that:
  • an employee has a duty to take all reasonable steps to mitigate his or her losses;
  • an employee cannot claim for any damage which is due to his or her own neglect from not taking reasonable steps;
  • any benefit derived from complying with the duty to mitigate is deducted from the damages due in lieu of notice;
  • the burden of proof is on the employer to establish that: 
    1. through reasonable search, the employee could have found other similar employment that was reasonably adapted to the employee's abilities;
    2. the employee did not act reasonably in searching for alternate employment.
It is important to note that a dismissed employee's obligation here is only to establish that he or she took all reasonable steps to find alternate employment - this obligation does not mean the dismissed employee must act "perfectly."

Also of note is the fact that if a dismissed employee is able to find alternate employment during the reasonable notice period, the income earned would be credited against the damages for wrongful dismissal.

Delay in Mitigation

Courts are cognizant of the trauma a dismissal may cause an employee and the fact that it may be unreasonable to expect such an employee to "hit the ground running" on their job search. In Bustos v. Celestica International Inc., it was held that a "plaintiff is entitled to an appropriate amount of time to adjust to his [or her] situation and to plan for the future before fulfilling his [or her] duty to mitigate (Bustos, para 37)."

By the same token, it would be unreasonable for an employee to take an inordinate amount of time to begin mitigating their losses. In Dixon v. Sears Canada Inc., the British Columbia Supreme Court accepted the plaintiff's argument that she was "emotionally distraught" following her dismissal. However, in this case the plaintiff took more than a year to begin looking for a new job. In response to this unreasonable delay, the Court stated:
But the evidence shows that for over a year after her dismissal, she did little or nothing to find alternate employment. I would have been much more impressed by her argument had she been able to show that she had   sought counselling and assistance, and had begun her search for alternate employment, say, six months after her dismissal. (Dixon, at para 45).
Mitigating by Returning to Employer
As strange as it may seem, a dismissed employee may be even required to return to work for the dismissing employer as part of the employee's duty to mitigate.

The Supreme Court of Canada's landmark decision in Evans v. Teamsters Local No. 31, held that a reasonable person standard ought to be used to assess such cases- that is whether a reasonable person in the dismissed employee’s position would have mitigated his or her damages by accepting an offer of temporary work from a former employer. 

In making the assessment of whether an employee should return their former employer a number of factors are considered.

Factors For Returning:
  • the salary offered is the same;
  • the working conditions are not substantially different or the work is not demeaning;
  • the personal relationships involved are not acrimonious.
Factors Against Returning:
  • atmosphere of hostility, embarrassment or humiliation;
  • history and nature of the employment
  • whether or not the employee has commenced litigation (however as will be examined shortly, the commencement of litigation does not necessarily render it unreasonable to require the dismissed employee to mitigate damages by accepting an offer of re-employment);
  • whether the offer of re-employment was made while the employee was still working for the employer or after he/she had left.
Failure to Return - A Fatal Flaw

The Ontario Court of Appeal's September 2013 decision in Chevalier v. Active Tire & Auto Centre Inc. affirmed the Superior Court of Justice ruling regarding the detrimental impact an employee's failure to return to one's previous employer can have in a wrongful dismissal claim.

After nearly 33 years of continuous employment, Earl Chevalier ("Mr. Chevalier") was notified by his employer that he was being laid off. Two weeks after his dismissal, Mr. Chevalier commenced an action for wrongful dismissal, seeking 24 months in damages for pay in lieu of notice. However, after the commencement of his wrongful dismissal action, Mr. Chevalier's former employer "wrote to Mr. Chevalier calling him back to work ... confirmed Active Tire's willingness to continue Mr. Chevalier's employment and conveyed Active Tire's apology for its mistake in laying him off. Mr. Chevalier's counsel confirmed that Mr. Chevalier would not be returning to work, and would be continuing this litigation (Chevalier - Superior Court ruling at para 5)."

At trial, the employer conceded that Mr. Chevalier was constructively dismissed when he was laid off and would have been entitled to damages in lieu of notice in the range of 18 to 24 months. However, the employer raised the argument that because he failed to return to work following his dismissal, Mr. Chevalier failed to mitigate and was not entitled to recover any damages in lieu of notice.

Ultimately, both the Superior Court of Justice and the Ontario Court of Appeal held that a reasonable person in Mr. Chevalier's position, would have returned to work for Active Tire, for the following reasons:
  • "accepting the opportunity to return to Active Tire would not have obliged Mr. Chevalier to work in an atmosphere of hostility, embarrassment or humiliation" (Chevalier - Superior Court ruling at para 44);
  • "the decision to lay off Mr. Chevalier was made for economic reasons, given the financial performance of the Niagara Falls location, under the mistaken belief that Active Tire had the right to do so in these circumstances" (Chevalier - Superior Court ruling at para 51);
  • "once Active Tire received legal advice that they were not entitled to lay off Mr. Chevalier, Active Tire promptly called him back to work and apologized for their mistake" (Chevalier - Superior Court ruling at para 51);
  • "the fact that Mr. Chevalier had already left the employ of Active Tire, and the fact that he had already sued the company, when the offer of re-employment was made, while relevant, were not determinative of the reasonableness of his rejection of Active Tire's offer of re-employment" (Chevalier - Court of Appeal ruling at para 9).
Where the Law Stands

In this case, the employer raised two arguments with respect to Mr. Chevalier's mitigation efforts. First, that Mr. Chevalier's refusal to return to Active Tire resulted in his failure failure to mitigate. Second, that Mr. Chevalier "failed to diligently look for suitable work from another employer in the period following his departure from Active Tire (Chevalier - Superior Court ruling at para 10)."

It is interesting to note that the Superior Court only agreed with the employer's argument that Mr. Chevalier failure to return to work for them resulted in his failure to mitigate.

As previously stated, the employer's burden of establishing that a dismissed employee failed to act reasonably in searching for alternate employment is a very difficult test to meet. In this case, for instance, the Court held that "[w]hile it would have been reasonable to expect Mr. Chevalier to produce more extensive documentary evidence of his employment search, I accept his evidence on this subject nonetheless, and find that he made a reasonable effort to obtain suitable employment from other potential employers" (Chevalier - Superior Court ruling at para 55).

Let us assume for a moment that his former employer did not offer Mr. Chevalier his job back. It can be argued that the outcome of this decision would have been far more favourable for Mr. Chevalier.

- Nitin Pardal, Toronto
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