Contractual Termination Payments Not Subject To Mitigation

Author:Ms Lisa Carty and Connie Reeve
Profession:Blake, Cassels & Graydon LLP

In its decision in Bowes v. Goss Power Products Ltd., released on June 21, 2012, the Ontario Court of Appeal confirmed that an employee's success in finding other employment will not reduce termination payments due under a contract, unless the employment contract contains clear and specific wording to the contrary.

The Facts

The employment contract at issue contained a termination provision providing Mr. Bowes with a fixed amount of notice or pay in lieu of notice if his employment was terminated without cause. The termination provision was silent with respect to his obligation to mitigate, and specifically, did not address whether successfully obtaining alternate employment would reduce his termination entitlements. When the company terminated Mr. Bowes' employment without cause on April 13, 2011, under the terms of the employment contract he was entitled to six months' pay in lieu of notice. Accordingly, the company advised Mr. Bowes that it would continue paying his salary for six months; however, it also advised him that he was required to seek alternate employment during that period and that if he was successful, his salary continuance would cease.

Two weeks after the termination of his employment, Mr. Bowes found alternate employment earning a comparable salary. Accordingly, after the company paid Mr. Bowes his statutory termination pay, it ceased paying him his salary continuance.

The Lower Court Decision

Mr. Bowes brought an application to the Superior Court of Justice for a determination of his termination entitlements. Mr. Bowes alleged that his employment contract set out a termination payment that was due and owing, and that he had no duty to mitigate that payment. The company argued that Mr. Bowes had only suffered two weeks' loss of salary, and paying him six months of salary would be inconsistent with a reasonable interpretation of his employment contract and prior case law in Ontario.

The Court agreed with the company, finding that while the parties had specified a period of reasonable notice in the employment contract, this did not eliminate the duty to mitigate. Specifically, the Court held that where an employment contract contains a fixed severance entitlement, that severance entitlement is subject to a duty to mitigate unless the contract, either directly or by implication, relieves the employee of that obligation. The judge hearing the application reasoned that since the obligation to mitigate arises where there is a...

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