November 26, 2018

By: Chris Justice

When an employee claims damages for wrongful dismissal, they are typically required to do their very best in mitigating any damages relating to loss of income following the dismissal (i.e. by looking for and obtaining alternate, comparable employment).  In most cases, income earned during the common law notice period is then deducted from that which the employer would otherwise have to pay to the employee over that notice period.

But are all types of income deducted from damages owed?

In a decision released on May 23, 2017 (Brake v. PJ-M2R Restaurant Inc.), the Ontario Court of Appeal shed further light on this question, revising the traditional deductions in calculating the quantum of damages in a wrongful dismissal action.

In that case, Ms. Brake, a 62-year old manager with over 25 years of service was wrongfully dismissed.  While Ms. Brake did, in fact, earn income during the notice period through a job she obtained following the dismissal, the Court of Appeal found that this income ($600) was not significant enough to be deducted from the notice award.  It is also important to note that the court in this case held that the mitigation income earned during the statutory notice period, and income that was earned from a job Ms. Brake held simultaneously while working for the restaurant, would not be deducted from the damage award.

Fast-forward a year later, and another decision was released, this time from the Ontario Superior Court of Justice (MacKenzie v. 1785863 Ontario Ltd.), with a very similar issue at play.

In that case, Mr. MacKenzie, a 65-year old general manager with 5 years of service, earning $65,000.00 annually, was wrongfully dismissed and awarded 9 months’ notice.  Much like Ms. Brake, following his dismissal, Mr. MacKenzie obtained alternate employment.  First, he began working for his wife and earning $2,000.00 per month for 6 months. Subsequently, he began working a different job and earning $1,500.00 a month up to the time of judgment.  Similar to the Court of Appeal in Brake, the Court held that Mr. MacKenzie’s post-termination earnings would not be deducted from his award. The Court’s rationale was that since an employee does not have to accept a significantly inferior job, as was the case here, Mr. MacKenzie could have rejected the job offer, and not earned any income after his termination.  Justice Feldman’s reasons in Brake were clearly cited as the rationale. Accordingly, the amounts earned were not deducted from the awarded notice period.

In many cases, employers will take a “wait and see” approach to whether or not the employee finds new employment post-termination, regardless of how much any new job may earn. Should the employee accept a new job, employers have typically sought to have those monies deducted, dollar for dollar, from what the employer would otherwise pay.

However, in these situations, a court may instead follow Brake and MacKenzie and deem that the amounts earned will not be considered mitigation of damages, and therefore not be deducted from the award, breaking from the traditionally accepted concepts.  As such, in order to save time and money, employers will have to seriously consider the practicality of trying to save money through an employee’s post-termination earnings.  Instead, it may now be wiser to provide employees with an enforceable contract a specific amount to be paid in the event of termination.

It is not exactly clear what the threshold is when it comes to the deductibility of post-employment income from wrongful dismissal damages. In Brake, it was a matter of a few hundred dollars, but in MacKenzie, it was significantly more (and approximately 37% of his previous income). It is important to note that decisions like Brake and MacKenzie completely fly in the face of how courts historically have treated income earned by a dismissed employee during the notice period. By shockingly breaking from these long-standing accepted principles, these cases and the precedent they set are a significant coup for dismissed employees in a non-unionized context.

However, whether this trend will continue and to what extent an employee can earn “mitigation” income while not affecting the damages outcome remains uncertain.