In Pakozdi v. B & B Heavy Civil Construction Ltd., 2018 BCCA 23, the British Columbia Court of Appeal addressed the treatment of replacement income in the calculation of damages for a wrongfully dismissed employee. The  Court of Appeal also overturned an award of eight months’ reasonable notice for an employee with only one year of service and considered a plaintiff’s entitlement to fringe benefits during the notice period.

Background

Mr. Pakozdi was a bid estimator and construction professional who commenced employment with B & B Heavy Civil Construction Ltd. in early January 2014. During his employment, and with the consent of B&B, Mr. Pakozdi provided consulting services to other clients. In January 2015, B & B terminated Mr. Pakozdi without cause and provided him with approximately two weeks’ pay in lieu of notice. After his termination, Mr. Pakozdi increased his consulting work and generated significantly more income from his consulting business than he had during his employment with B & B.

Mr. Pakozdi sued B & B for wrongful dismissal. The trial judge held Mr. Pakozdi was entitled to five months’ notice of termination. However, upon consideration of Mr. Pakozdi’s “worsened medical condition” and his resulting vulnerability, the trial judge increased the notice period award to eight months. The trial judge also held that Mr. Pakozdi’s post-termination consulting earnings should not be accounted for when calculating damages, on the basis that B & B condoned these activities while he was employed.

Appeal

B & B appealed the decision on the grounds that i) eight months’ notice was unreasonable, particularly given Mr. Pakozdi’s short service, and ii) the trial judge erred in failing to reduce Mr. Pakozdi’s damages for his increased consulting earnings after termination.

The Court of Appeal agreed with B & B on both grounds, finding that an employee’s vulnerability, while it may be appropriate to consider as part of the notice assessment in certain circumstances, is not be an independent factor that increases the notice period, particularly where the evidence is that it did not, in fact, limit the plaintiff’s ability to earn income post-termination. The reasonable notice period was reduced from eight months to five months, which the Court held was “on the high side”.

Regarding Mr. Pakozdi’s damages, the Court clarified that, in wrongful dismissal claims, an employee’s damages may be reduced for “avoidable loss”, i.e. evidence that the employee failed to take reasonable steps to avoid the loss resulting from a wrongful dismissal, and/or for “avoided loss”, which is what a wrongfully dismissed employee actually earns to replace the income lost by virtue of the wrongful dismissal.

The Court of Appeal relied on the latter principle and found that the trial judge was “too categorical” and erred in excluding all of Mr. Pakozdi’s post-termination consulting work income. In cases where an employer condones an employee’s supplementary income-earning activities during employment, the Court of Appeal confirmed that only the earnings that the employee “could have earned while continuing with the first [employer]” can be excluded from the reasonable notice damages assessment. In the result, the Court concluded that approximately $30,000 of Mr. Pakozdi’s post-termination earnings was replacement income that amounted to avoided loss, and deducted this amount from his damages for wrongful dismissal.

Cross-Appeal

Finally, the Court also considered Mr. Pakozdi’s cross-appeal that the trial judge erred in not awarding him damages for his inability to participate in B & B’s RRSP matching program during the reasonable notice period. The Court confirmed the principle that “a plaintiff cannot recover for fringe benefits that would have been paid by the employer unless the employee has in fact incurred the expense during the notice period”. The Court noted, however, that this principle does not fit well with “benefits such as matching expenses to a group plan, where the employee cannot make the expenditure that would trigger the employer match once he has been dismissed”.  The Court relied on the basic principle that a wrongfully dismissed plaintiff “is entitled to compensation for the loss of the opportunity to share in whatever pecuniary benefits would have flowed from being an employee during the notice period”. Acknowledging that wrongful dismissal damages are an assessment rather than a precise mathematical calculation, the Court awarded Mr. Pakozdi $2,500 for the lost opportunity to participate in B & B’s RRSP matching program.

Key Takeaways

Pakozdi is a good reminder and summary of the principles underlying an employee’s “duty to mitigate” following a wrongful dismissal, and confirms that post-termination income in excess of  supplementary income that an employee has earned while employed is properly deducted from a wrongful dismissal damages award. The decision also reiterates the framework for the assessment of reasonable notice, and is a caution against introducing new factors to increase the notice period without a reasonable foundation.

If you have any questions about the reasonable notice assessment and how mitigation may affect this analysis, please do not hesitate to contact a member of our Labour and Employment group.

*drafted with the assistance of articling student, Alyssa Leung.