Employment Agreements Must Specify Duty to Mitigate

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A recent ruling of the Ontario Court of Appeal has clarified that where an employment agreement provides for a specific amount to be paid to the employee in the event of termination without cause and is silent with respect to mitigation, the employee will not be required to mitigate.

The employee in this case, Peter Bowes, had worked as Vice-President, Sales and Marketing for Goss Industries Inc., since Fall 2007. On April 13, 2011, his employment was terminated immediately, without cause and without notice.

The employment contract that Bowes had signed prior to commencing his employment provided that he would receive six months’ notice or pay in lieu thereof in the event his employment was terminated without cause. The contract was silent with respect to mitigation.

The termination letter Bowes received stated that he would receive salary continuance for six months, and that he was required to seek employment and keep the employer informed in this regard. Bowes secured a position at the same salary in only two weeks. After paying the statutorily required amount of three weeks’ salary, the employer stopped making payments.

Bowes brought an application for a determination of his rights pursuant to the employment agreement, arguing that the contract set out the payment that was due, and that he had no duty to mitigate.

At first instance, the judge determined that an employment agreement was subject to the duty to mitigate, unless the agreement expressly relieved the employee of the duty. However, on appeal, the Ontario Court of Appeal overturned the judge’s decision.

The Court of Appeal explained that an employment contract that provides for a fixed term of notice, or pay in lieu thereof, must be treated as fixing liquidated damages or as a contractual amount, as opposed to damages in lieu of common law reasonable notice. As such, there was no obligation on the employee to mitigate.

The decision thus reiterates that where the parties have entered into an agreement that specifies a fixed amount of damages, clear and specific language is required in order for mitigation to apply upon termination without cause.