Expressly or Implicitly Removing an Employee’s Duty to Mitigate in the Employment Agreement

In Bowes v. Goss Power Products Ltd., 2012 ONCA 425 (CanLII), a recent decision of the Ontario Court of Appeal, the Court clarified an employee’s duty to mitigate if that employee is contractually entitled to a fixed notice period or payment in lieu.  In this case, despite the fact that Mr. Bowes found new employment at the same salary only two weeks later, the Court ordered the employer, Goss Power Products Ltd. (Goss), to pay Mr. Bowes the 6 months’ pay in lieu of notice upon termination that was in the employment agreement. 

Goss argued the long-held belief that an employer is entitled to reduce its obligation to pay notice, whether at common law or contract, by the amount the employee earned in his subsequent employment during the notice period.  The Court, however, disagreed and found that when the amount of notice the employee will receive upon termination is specified in the employment agreement, and that agreement is silent on the duty to mitigate, the employee is not required to mitigate his or her damages.  The Court stated that, unlike damages awarded at common law for pay in lieu of notice, the issue of mitigation does not arise in this situation because it is not assessing damages for a breach of contract, but rather enforcing the clear language of the contract.  An employer cannot, therefore, reduce the amount of notice owed under contract, even where the employee finds new employment during that notice period.  If an employer wants the employee to be subject to the duty to mitigate, the employment agreement must clearly specify that the duty to mitigate applies.

The Court found that by fixing a contractual notice period in the employment agreement, both employers and employees opt for certainty and finality, as they remove the risk of litigation and calculation of reasonable notice at common law.  Subjecting an employee to a duty to mitigate for a contractual entitlement is inconsistent with this certainty as it would be unfair to permit an employer to raise the issue of mitigation after the employee has been terminated.  An employer who has ousted the common law period of notice by fixing the amount to be provided upon termination, but failed to preserve the requirement to mitigate, cannot then seek to lower its contractual obligation if the employee is successful in finding new employment after dismissal.  Only by expressly including a duty to mitigate in the contract can an employer limit its contractual exposure if an employee is successful in finding subsequent employment.

Employers using template employment contracts that set out the notice period for without cause terminations should carefully review and potentially revise these contracts.  The revised contracts should clearly specify that the employee’s right to notice, or pay in lieu of notice, is subject to the duty to mitigate and that any earnings from subsequent employment may be used to reduce contractual payments owed.  Employers, however, should be careful not to alter existing employment agreements without the employee’s consent and some form of new consideration.  In addition, employers must be careful in their language so as to not contravene the Employment Standards Act, 2000 where there is no duty to mitigate the statutory notice requirements. 

In collaboration with Matthew Demeo, Student at Law at Norton Rose Canada LLP