The Wrongful Dismissal – What Happened?

Esther Brake worked for McDonald’s for over twenty-five years, first in Cornerbrook, Newfoundland, and then as a restaurant manager in Ottawa. She had received nothing but excellent reviews for years, but in 2011 she was suddenly told her performance was inadequate and that she had two options: accept a demotion or be fired. Ms. Brake refused the demotion and filed a successful action for wrongful dismissal.

The most interesting issue in this case was not the question of whether the dismissal was justified or not, but whether the trial judge erred by not subtracting Ms. Brake’s post-dismissal income from her damages.

The Trial Judge Holds Inferior Income is Not Deductible as “Mitigation Income”

The trial judge awarded Ms. Brake damages based on 20 months of remuneration, and made no deductions for the new work she had acquired in the meantime. Ms. Brake had obtained significantly lower-paid work that the trial judge described as “so substantially inferior to the managerial position she held with the defendant that the former does not diminish the loss of the latter”. In other words, her new income was so insignificant that it should not be deducted from her damages.

This cast doubt on the application of the well-established principle that following related to an employer’s duty to provide notice of termination is the employee’s duty to mitigate the damages flowing from a wrongful termination. Mitigation income, being the income earned in the “reasonable notice” period following an employee’s dismissal will typically be deducted from any amount owing to the employee.

The Court of Appeal Weighs In

The trial judge’s findings with respect to Ms. Brake’s constructive dismissal were largely upheld.

However, with respect to mitigation income, the majority in the Court of Appeal held that her mitigation income did not need to be deducted, but for different reasons, which were:

  1. Some of it included employment insurance benefits, which are not to be deducted.
  2. Brake was entitled to termination and severance pay that could not be deducted because they are statutory minimums and the majority of her income in the intervening period since her termination was earned during Ms. Brake’s “statutory entitlement period”.
  3. Some of Ms. Brake’s income earned following her dismissal was from a job she had while she was still working at McDonald’s and so was not mitigation income.

The Court of Appeal’s comments regarding a “statutory entitlement period” appear inconsistent with how statutory amounts have typically been treated when an employee commences a wrongful dismissal action and receives damages inclusive of any statutory amounts. In such a case, the employee’s statutory entitlements are paid by way of lump sum, and so it is that lump sum amount that the employee, regardless of mitigation income, at minimum must receive. It is not the case, however, that mitigation income earned over the period that corresponds with the period over which statutory amounts would have been paid (if the severance payment was treated as a severance period, which it is not. Indeed, the Ontario Employment Standards Act, 2000 requires severance be paid by lump sum and an employer cannot simply provide an employee with working notice instead of severance pay) is not to be otherwise deducted from the common law wrongful dismissal damages award.

Interestingly, Justice Feldman wrote a concurring opinion agreeing with the trial judge’s reasoning that the inferiority of Ms. Brake’s new employment should be considered when awarding damages. The question for Justice Feldman is whether the or not the employee would be in breach of their duty to mitigate if they turned down the inferior job offer. If the answer is no, then the income is not mitigation income. This, however, seems contrary to the well-established principles of mitigation in the employment law context and the principle that the employee is not to be placed in a better position than they would have been had reasonable notice of termination at common been provided.

Employer Takeaways

The Court of Appeal majority has likely created some confusion over how mitigation income is to be deducted based on their discussion of a “statutory entitlement period”.  And Justice Feldman in her concurring opinion agreeing with the trial judge’s conclusion that “inferior” mitigation income may not need to be deducted from a wrongful dismissal damages award further muddies the water on this issue.

We may have to wait until the Court of Appeal weighs in again, or until such an issue is addressed by the Supreme Court of Canada, to gain some clarity on these issues.

For now, however, employers should be aware that it may not be the case that any income earned over the reasonable notice period will be deducted from wrongful dismissal damages. That said, it remains the case that if an employee finds a new job during this period, it is likely that this will serve to reduce any common law liability on the employer. Thus, employees should still be held to their duty to mitigate and employers should help if possible, and certainly not hinder them, in doing so.

Written with the assistance of Kevin Schoenfeldt, summer student.