The Divisional Court recently released a decision that helps to clarify the law on mitigation of damages in wrongful dismissal cases.

The Court held that if a dismissed employee gets a new job during his or her notice period that pays more than the employee’s previous job, the employee’s surplus earnings can’t serve to reduce damages owed to the employee for the period he or she was unemployed.

The Court held that, in other words, a dismissed employee’s notice damages can’t be “back-filled” by higher earnings earned later.

An employee who is dismissed from his or her employment has the obligation to take reasonable steps to find replacement employment to minimize (or “mitigate”) his or her losses. When a dismissed employee does find replacement employment during the notice period, income earned during the notice period will be deducted from any damages owed to the employee in lieu of notice.

So, if, during an employee’s notice period, the employee secures a replacement job, that employee will be said to have mitigated his or her damages from the moment the replacement job began and thereafter. However, the law has been somewhat unclear on how a court should treat an employee’s earnings when that employee earns more in his or her replacement employment than he or she did in previous employment.

In Kideckel v Gard-X Automotive Refinish Inc.,[1] the Court considered this very issue.

In February of 2014, Martin Kideckel’s employer gave Mr. Kideckel working notice that his employment would terminate, without cause, on May 30. Three months later, Mr. Kideckel’s employment did terminate. After two weeks of being briefly unemployed in early June, Mr. Kideckel secured a new job with a new employer. In his new position, Mr. Kideckel earned more than he had earned working in his previous position. As such, from the date Mr. Kideckel began working at his new job, he was said to be fully mitigating his notice damages.

However, because Mr. Kideckel was actually more than fully mitigating his damages from his date of hire and after, his former employer argued that the notice damages Mr. Kideckel was owed for his two-week period of unemployment should be reduced by any surplus earnings Mr. Kideckel had earned during the balance of his notice period.

Mr. Kideckel had argued that he was owed $900 in damages for lost wages during the two-week period he was between jobs. In response, his former employer argued that, during the remainder of the notice period, Mr. Kideckel earned thousands of dollars more than he would have otherwise earned in his previous job, so the $900 loss had been recovered.

Ultimately, the Court did not side with Mr. Kideckel’s former employer. The Court held that Mr. Kideckel’s surplus earnings, earned after he began working for his new employer, did not mitigate the $900 in losses Mr. Kideckel had suffered during the two-week period in which he had been unemployed.

The Court reasoned:

. . . if the employer gave adequate working notice for the entire notice period, the worker would have been paid while he continued work up until commencing new employment, with no duty to account back to his old employer for his increased wages.

Employers should take heed of this decision. While it is good news for everyone if a dismissed employee secures new employment during his or her notice period, according to this decision, surplus earnings cannot be applied retroactively.

[1] 2020 ONSC 37.

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