Employer clients often ask during a wrongful or constructive dismissal lawsuit what damages may be awarded. One relevant consideration is the common law duty to mitigate. A wrongfully dismissed employee has a duty to mitigate his or her damages by attempting to find alternate employment. The question of whether an employee has met his or her duty to mitigate becomes especially relevant in times of economic downturn when employment prospects are sparse. In light of the current Alberta economy now is a good time to remind employers what obligations an employee has following a dismissal without notice.
The most recent Canadian authority on the duty to mitigate remains the Supreme Court of Canada’s decision in Evans v. Teamsters, Local 31, 2008 SCC 20 (“Evans”). The Supreme Court reaffirmed in Evans an employee’s duty to mitigate his or her losses resulting from a wrongful dismissal. There are four important takeaways for employers following Evans:
- Employers who give sufficient working notice of termination aren’t required to pay the employee above and beyond that notice.
- Damages in wrongful dismissal cases are meant to compensate for lack of notice and not to penalize the employer. The employer’s obligation to pay damages in lieu of notice is subject to the employee making a reasonable effort to mitigate his or her losses by seeking an alternate source of income.
- Provided that the employee won’t be subject to hostility, embarrassment, or humiliation, an employer can satisfy its notice obligation by making the employee an offer to return to work for the balance of the notice period. The objective test to determine whether reemployment is an appropriate option is – would a reasonable person consider the offer as a legitimate opportunity; and,
- Damages awarded because the employer acted in bad faith in the manner of dismissal are not subject to mitigation.
The duty to mitigate is especially relevant in a couple of ways. First, if an employer is able to establish that the terminated employee did not make reasonable efforts to mitigate his or her damages during the reasonable notice period, the court may decrease the amount of damages that it would have otherwise awarded. Second, a court will reduce any monetary award made to the former employee by the amount of employment income the employee earned from other sources during the reasonable notice period.
What constitutes reasonable notice depends on a number of factors relating to the circumstances of the individual employee, the nature of his/her job and the availability of similar employment. The Ontario Court of Appeal in Michela v. St. Thomas of Villanova Catholic School, 2015 ONCA 801, and recently adopted in Alberta in Eggers v. Rocky Mountain Soap Co, 2015 ABPC 202, clarifies that an employer’s financial struggles will not necessarily justify a reduction in the reasonable notice period.
However, the issue of how an economic downturn will affect the length of the reasonable notice period is not well settled in law. In a recent Alberta decision, Lederhouse v. Vermilion Energy Inc., 2015 ABQB 387 (“Vermilion Energy”), the Court took judicial notice of the fact that oil prices had fallen dramatically. The Court states “the employer cannot help that the economy is faltering and should not be ‘punished’ therefore.” Following Vermilion Energy economic factors are a consideration in determining the length of the reasonable notice period. If an employee is terminated during an economic downturn, the notice period may, in fact, be reduced.
What does this mean for employers in Alberta? In the past, employers could expect most employees to find new employment shortly after their termination. Now, however, employers face a reality where laid off employees remain out of work, through no fault of his or her own, for the entirety of the reasonable notice period. Thus, employers are becoming liable for a greater overall damages.
Regardless of the current job market, the duty to mitigate continues, and will continue, to play an important role in wrongful or constructive dismissal litigation. It is important for both employers and employees to understand a dismissed employee’s post-termination obligations.
Written with the assistance of Rebecca Silverberg, articling student.