Termination Clauses and Mitigation

A recent Ontario Court of Appeal decision sounds a warning to employers - if you want to have a set amount of notice or compensation for termination without cause, AND you want to require the former employee to mitigate, you need to say so explicitly in the contract.

Goss Power Products had a written contract with its employee Bowes that stipulated that he would get six months notice or salary in lieu of notice if he was terminated without cause.  On termination, Bowes was told he would get six months salary continuance if he looked for other employment.  He was terminated on April 13, 2011 and started in a new job 12 days later.  His former employer paid him for three weeks (to meet its Employment Standards obligation), but no more.  The court said he was entitled to the full six months.

There have been different approaches to this issue in the past.  In BC, it has generally been held that a duty to mitigate arises with any breach of an employment contract.  In employment cases, that means the terminated employee has an obligation to make reasonable efforts to find suitable alternative employment and any employment income received during the period of notice reduces the liability of the former employer.  However, there has been a distinction drawn where the contract stipulated the payment of a certain amount as the method of termination as opposed to stipulating the amount payable because of termination.

The Ontario case is of the former type - even though the termination letter talked about salary continuance, the contract actually said the employment could be terminated without cause "by providing [six months] notice or pay in lieu."  The court did not comment on this distinction but stated this general proposition:

"...if parties who enter into an employment agreement specifying a fixed amount of damages intend for mitigation to apply upon termination without cause, they must express such an intention in clear and specific language in the contract."

We can argue whether that is correct in all cases where an amount is stipulated.  But rather than having a good argument, an employer wanting to rely on mitigation should say so clearly in the contract.

In earlier posts we looked at other issues in written employment agreements.

Bowes contractual amount damages duty to mitigate employment contract Goss Power Products liquidated damages mitigation termination clause

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