Must a Wrongfully Dismissed Employee Try to Find New Work?

Former Employees Have a Duty to Mitigate By Taking Steps to Reduce the Losses That Occur By Termination of Employment. The Duty Applies to Employees Whether the Termination was a Wrongful Dismissal or Constructive Dismissal.

Understanding What Constitutes As a Failure to Mitigate Within Wrongful Dismissal or Constructive Dismissal Cases

Employment Termination Notice Including Notice Requiring Efforts to Mitigate Income Losses The law in Canada often requires a harmed person to mitigate.  Simply stated, the harmed person must act reasonably in a genuine effort to reduce the extent of the harm suffered.  In the employment law context, this duty to mitigate is imposed on the wrongfully terminated employee.  Frustratingly to many employees who misperceive that some form of punishment should be inflicted upon the employer, the employee is unable to simply sit around doing nothing all the while blaming the past employer for the employee's unemployed situation; and accordingly, when an employee sues an employer for terminating without proper notice or termination pay-in-lieu of proper notice, the employer often points back alleging that the employee failed to mitigate.  The requirement to make a reasonable effort to obtain new employment was well articulated within the cases of Lake v. La Presse, 2022 ONCA 742, and Clark v. Township of Otonabee-South Monaghan, 2019 ONSC 6978 wherein it was said:

[11]  The leading authority is Red Deer College v. Michaels, 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324. The duty to mitigate is based on the premise that the defendant is not responsible for losses that a plaintiff could reasonably have avoided. If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, “it is for the defendant to carry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial judge’s assessment of the plaintiff’s evidence on avoidable consequences”: at p. 331. The burden is on the defendant to show the plaintiff “either found, or, by the exercise of proper industry in the search, could have procured other employment of an approximately similar kind reasonably adapted to his abilities”: at p. 332. The burden is “by no means a light one, for this is a case where a party already in breach of contract demands positive action from one who is often innocent of blame”: at p. 332.

[12]  While a terminated employee has a duty to take reasonable steps to mitigate, the onus is on the defendant to demonstrate that the plaintiff could reasonably have avoided a loss or that she acted unreasonably in failing to do so: Gryba v. Moneta Porcupine Mines Ltd. (2000), 2000 CanLII 16997 (ON CA), 5 C.C.E.L. (3d) 43 (Ont. C.A.), at para. 57. The defendant must prove: (1) that the plaintiff failed to take reasonable steps to mitigate her damages; and (2) that if she had done so she would have been expected to secure a comparable position reasonably adapted to her abilities: Link v. Venture Steel Inc., 2010 ONCA 144, 79 C.C.E.L. (3d) 201, at para. 73.

[13]  The determination of whether a terminated employee took reasonable steps in mitigation, including whether the failure to mitigate caused any part of the loss, is largely a question of fact. Absent an error in principle or a palpable and overriding error, a decision respecting mitigation is entitled to deference: Humphrey v. Mene Inc., 2022 ONCA 531, at para. 53McNevan v. AmeriCredit Corp., 2008 ONCA 846, 94 O.R. (3d) 458, at para. 67.

[18]  The defendant argues that the plaintiff has failed to properly mitigate his damages, citing the facts that he has made no applications for employment, has not sought the assistance of a professional employment agency, and has limited the scope of his search to “grader operator”.

[19]  The law relating to an employee’s duty to mitigate damages is described as follows in Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (CanLII), [2008] 1 S.C.R. 661, at paras. 99f:

In Red Deer College, at p. 332, the Court held that the burden of proving that an employee has failed to mitigate his or her damages lies with the employer. Laskin C.J. cited Cheshire and Fifoot's The Law of Contract (8th ed. 1972), to explain the nature of the burden:

the burden which lies on the defendant of proving that the plaintiff has failed in his duty of mitigation is by no means a light one, for this is a case where a party already in breach of contract demands positive action from one who is often innocent of blame. [p. 599]

As this passage suggests, the burden of proof is onerous. This is consistent with the approach to [page705] mitigation as a principle in damages more generally. As Waddams observed: "In case of doubt, the plaintiff will usually receive the benefit, because it does not lie in the mouth of the defendant to be over-critical of good faith attempts by the plaintiff to avoid difficulty caused by the defendant's wrong" (15.140).

An employer alleging a failure to mitigate must prove two things: that the employee did not make a reasonable effort to find new work and that had the employee done so, he or she would likely have been able to obtain comparable alternative employment. In other words: that the loss was avoidable.

[20]  While I agree that the plaintiff’s efforts at mitigation seem, at least on the surface, to be somewhat lacklustre, this may very well be a factor of the limited availability of comparable jobs where he lives, and has worked. In any event, there is no evidence to suggest that the plaintiff could have obtained comparable alternative employment had he put more effort into the search.

[21]  In the result, I find that the defendant has failed to satisfy its onus of proving that the plaintiff has failed in his duty of mitigation.

The Requirement to Minimize Loss of Income

When a wrongful dismissal occurs, that is when an employer fails to provide reasonable notice of termination or proper pay-in-lieu of notice, an employee is generally granted some time to get over the initial shock of unemployment as well as to prepare and implement a job seeking strategy.  A few weeks to a few months, depending on the situation, as a grieving period is generally granted by the courts.  However, if an employee fails to seek new employment within a reasonable period of time, or fails to keep proof of the effort, the employer may become excused from liability.

Mitigating With the Same Employer

Surprising, the law sometimes requires the dismissed employee to mitigate by staying on with the very employer that is terminating the employee.  This requirement, where the dismissing employer makes a clear offer for the employee to work out the notice period, or a portion of, was stated by the Supreme Court in Evans v. Teamsters Local Union No.  31[2008] 1 S.C.R. 661 where it was said:

[29]  There appears to be very little practical difference between informing an employee that his or her contract will be terminated in 12 months’ time (i.e. giving 12 months of working notice) and terminating the contract immediately but offering the employee a new employment opportunity for a period of up to 12 months.  In both situations, it is expected that the employee will be aware that the employment relationship is finite, and that he or she will be seeking alternate work during the 12-month period.  It can also be expected that in both situations the employee will find that continuing to work may be difficult.  Nonetheless, it is an accepted principle of employment law that employers are entitled (indeed encouraged) to give employees working notice and that, absent bad faith or other extenuating circumstances, they are not required to financially compensate an employee simply because they have terminated the employment contract.  It is likewise appropriate to assume that in the absence of conditions rendering the return to work unreasonable, on an objective basis, an employee can be expected to mitigate damages by returning to work for the dismissing employer. Finding otherwise would create an artificial distinction between an employer who terminates and offers re-employment and one who gives notice of termination and offers working notice. In either case, the employee has an opportunity to continue working for the employer while he or she arranges other employment, and I believe it nonsensical to say that when this ongoing relationship is termed “working notice” it is acceptable but when it is termed “mitigation” it is not.

[30]  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 (SCC), [1976] 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), 1989 CanLII 260 (ON CA), 70 O.R. (2d) 701, at p. 710).  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 (SCC), [1980] 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.

[31]  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.

While unusual that an employer desires a dismissed employee to stay on and work out the notice period, where the employee is at low risk to commit sabotage, breach confidentiality, or cause other difficulties, the employer might make the offer to stay on.  If there is nothing humiliating or embarassing or unduly oppressive or indignifying, the employee may have the duty to stay on and work out the notice period.

As a means of protecting employees from employers that may allege that an employee failed to accept a notice period position, the Ontario Court of Appeal stated in Farwell v. Citair (General Coach Canada)2014 ONCA 177 that the employer must offer a, "...  clear opportunity ..." to mitigate.  Specifically, the Court of Appeal said:

[20]  There may well be merit in the appellant’s argument that the trial judge took a subjective approach in assessing “work atmosphere, stigma and loss of dignity” for the purposes of mitigation, rather than the required objective approach. There may also be merit in the argument that the circumstances here would support the imposition of an obligation on Mr. Farwell to mitigate by working through the notice period. But the appellant faces another obstacle, which, in my view, is insurmountable. To paraphrase Evans, the appellant’s mitigation argument presupposes that the employer has offered the employee a chance to mitigate damages by returning to work. To trigger this form of mitigation duty, the appellant was therefore obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he refused to accept the position of Purchasing Manager and told the Appellant that he was treating the reorganization as constructive and wrongful dismissal. 

Oddly, if the employee was constructively terminated whereas the employer unilaterally made substantial changes to the employee's position and the employee turned down this new alternate position and advising that the employee is deeming the change as a constructive termination, the employer is required to retable the offer.  Essentially, in such a situation, the employer must make the offer twice - the first time when offering the employee the alternate employment position that was turned down and deemed a constructive termination and then again for the second time as a mitigation position.  It is important to note that the offer of the mitigation position must happen after the employee declines the alternate employment position that triggered the constructive termination situation.  While seemingly odd that the employer must offer the position twice, this actually makes logical legal sense, even if not common sense, simply because the duty to mitigate - and an opportunity to mitigate - fails to exist until after termination occurs.  Accordingly, if the event that culminates in termination is the offer of an alternate employment position consistent with a constructive termination, then this offer was originally in the context of employment rather than mitigation.  If the employer wishes to rely on a failure to mitigate defence, the employer is required to clearly re-offer the position in the context of a chance to mitigate; as again, the duty to mitigate and a chance to mitigate are unable to exist until after termination first occurs.  This requirement was further explained and clarified in the case of Fillmore v Hercules SLR Inc., 2016 ONSC 4686 where it was said that a failure to accept a lesser position, essentially a demotion, is not a failure to mitigate.  Specifically, it was said:

[28]  The Farwell decision obliges the defendant to offer the plaintiff the “clear opportunity to work out the notice period” after the plaintiff refuses to accept the new, lesser position.  I do not view Hubley’s email as being consistent with Farwell.  Hubley’s email seems to keep both the Severance Offer and the New Offer of Employment on the table even though the plaintiff’s employment as Director (Purchasing) was “eliminated” the previous day.  The New Offer of Employment does not trigger the duty to mitigate as discussed in Evans and particularized in Farwell; rather, it was an offer to accept a demotion. 

Employment Insurance

Historically, much confusion appears whereas it seems that monies received by the employee as income from employment insurance during the notice period was commonly deducted and applied as a form of income loss mitigation; however, as the Court of Appeal reminded in Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402, such monies are intended as a benefit and are excluded from calculation as mitigation monies.  Specifically, the Court of Appeal said:

[101]  In my view, the law is clear: EI benefits are not to be deducted from damages awarded for wrongful dismissal.  Accordingly, the damages award was not to be reduced by the $7,150 of EI benefits that Ms. Brake received in 2013.

[102]  The Supreme Court addressed the deductibility of EI benefits from wrongful dismissal damages in Jack Cewe Ltd. v. Jorgenson, 1980 CanLII 177 (SCC), [1980] 1 S.C.R. 812.  In that case, Mr. Jorgenson successfully sued Jack Cewe Ltd. (the “company”) for wrongful dismissal.  The trial judge awarded damages equivalent to a year’s salary.  From that amount, the trial judge deducted, among other things, the EI benefits[2] that Mr. Jorgenson had received during the twelve-month notice period.  The British Columbia Court of Appeal held that the EI benefits should not be deducted.  The company appealed to the Supreme Court and argued that EI benefits should be deducted in proportion to the company’s contribution. Its appeal was dismissed.

[103]  At p. 818 of Cewe, Pigeon J., writing for the Court, stated that he found the company’s position “untenable”.  He explained:

The payment of [EI] contributions by the employer was an obligation incurred by reason of [Mr. Jorgenson’s] employment, therefore, to the extent that the payment of those contributions resulted in the provision of [EI] benefits, these are a consequence of the contract of employment and, consequently, cannot be deducted from damages for wrongful dismissal.

[104]  This court expressed a similar view in Peck v. Levesque Plywood Ltd. (1979), 1979 CanLII 2055 (ON CA), 27 O.R. (2d) 108.  In Peck, after awarding an employee damages for wrongful dismissal, the trial judge reduced the award by the amount of EI benefits that the employee received during the notice period.  This court allowed the employee’s cross-appeal, holding that the damages award should not be reduced by the amount of the EI benefits.

[105]  Justice Dubin (as he then was), writing for this court, thoroughly canvassed the jurisprudence from across Canada on the question of whether there should be a deduction of amounts received by way of EI from a damages award for wrongful dismissal. At p. 112 of Peck, he concluded that they are not to be deducted since the employer ought not to profit from the benefits payable to the employee.  He stated:

It is to be observed that as a result of the [employer] breaching its contract of employment with the [employee], the [employee] was required to use up at least part of his [EI] benefits.  It would be inconsistent to have that amount taken into account for the benefit of the employer who, by its breach of contract, compelled the employee to resort to his [EI] benefits.

Statutory Entitlements

Additionally, the Court of Appeal in Brake also stated that monies earned during a statutory notice period, such as income from a new job during the period of notice prescribed by the Employment Standards Act, 2000, S.O. 2000, Chapter 41 are excluded from mitigation calculations whereas it was said:

[111]  Statutory entitlements are not damages. Ms. Brake was entitled to receive her statutory entitlements even if she secured a new full-time job the day after the Appellant terminated her employment. Therefore, the income that Ms. Brake earned during her statutory entitlement period is not subject to deduction as “mitigation income”. In reaching this view, I adopt the reasons of the Divisional Court in Boland v. APV Canada Inc. (2005), 2005 CanLII 3384 (ON SCDC), 250 D.L.R. (4th) 376.

Summary Comment

When an employee is dismissed and brings a wrongful dismissal case seeking compensation for insufficient notice or pay-in-lieu of notice, the employee is required to make a reasonable effort to minimize losses by taking reasonable steps to a new job (substitute employment).  If the employee unreasonably delays the search for a replacement position, the compensation due to the employee may be reduced.  While the employee bears the duty to seek new work, the employee is allowed a reasonable period of time to get over the initial shock of unemployment.  Of special note, it is the employer that bears the burden to prove that the employee failed to mitigate which includes the burden to prove that an opportunity to obtain a suitably comparable position was available.  Of further interest, in some situations, the employee may have a duty to mitigate with the very employer that is terminating the employee.


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