A recent decision of the Ontario Court of Appeal, Bowes v. Goss Power Products Ltd.,1 held that the duty to mitigate is no longer presumed to apply when there is a fixed severance entitlement negotiated into the termination clause of an employment agreement.
The duty to mitigate is a common law principle that, in the employment context, requires employees who are terminated without notice or with insufficient notice to look for a new job. Any remuneration earned with the new employer reduces damages that can be recovered from the employee's former employer as a result of the wrongful dismissal.
The Court of Appeal overturned a lower court's finding that a fixed severance entitlement is subject to the duty of mitigation unless the agreement, either directly or by implication, relieves the employee of this obligation. The lower court had wrongly decided that an agreement specifying a fixed severance entitlement, in the event of a dismissal without cause, was akin to damages in lieu of reasonable notice at common law and that there was a presumption that the employee had a duty to mitigate.
Peter Bowes commenced employment with Goss Power Products in October, 2007 as its Vice President, Sales and Marketing pursuant to an employment agreement which stated that:
The Employee's employment may be terminated in the following manner and in the following circumstances: ... (c) By the Employer at any time without cause by providing the Employee with the following period of notice, or pay in lieu thereof: ... (iii) Six (6) months if the Employee's employment is terminated prior to the completion of forty-eight (48) months of service. The agreement went on to provide that the agreed-upon notice period was in compliance with Bowes' minimum entitlements under the Employment Standards Act, 2000 and was inclusive of all amounts owed to the employee under statute or common law. However, the employment agreement, drafted by the employer, was silent with respect to the duty to mitigate.
The employer later terminated Bowes without cause. The letter of termination stated that he would be paid his salary for six months but was required to seek alternative employment during this period and keep the employer apprised of his efforts in this regard. Approximately two weeks after he was terminated, Bowes obtained a new position at the same salary he was earning with Goss Power Products. After paying the statutorily required three weeks' salary...