Dismissed employee was entitled to full contractual severance notwithstanding her failure to mitigate

Many employers attempt to define an employee’s right to compensation upon dismissal by having clear, enforceable termination provisions in their employment contracts. But what happens if the dismissed employee is offered re-employment shortly after termination and fails to accept it? Is she still entitled to the full contractual severance amount?

The Court of Appeal, in its recent decision Maxwell v. British Columbia, confirmed the answer is yes: a dismissed employee was found to be entitled to the full amount of contractual severance and did not have to mitigate her damages by accepting an offer of new employment.

In this case, Ms. Maxwell was employed by the British Columbia College of Teachers as their director of certification. She was employed under an employment contract which stated that she was entitled to an “all-inclusive payment in lieu of notice” equivalent to a month of salary and benefits per year of service (plus additional amounts if she was employed longer than nine years or was over 50 years old) if her employment was terminated without cause.

Effective January 9, 2012, the College was dissolved by the province and replaced by the Teacher Regulation Branch (the “Branch”). On December 1, 2011, Ms. Maxwell was offered employment with the new Branch, but she did not accept it. Instead, she contended that she was entitled to the full severance amount and related benefits under her employment contract.

The College and Province declined to pay Ms. Maxwell’s severance, arguing, among other things, that she had failed to mitigate any damages caused by the termination of her employment when she declined the Branch’s offer of new employment.

The trial judge and the Court of Appeal both disagreed. The Court found that, when a contract provides for a specific severance payment upon termination, a dismissed employee is entitled to that amount and is not required to mitigate his or her damages by seeking or accepting new employment. The Court of Appeal put it this way (at para. 27):

Where a contract provides for the effect of termination, generally the provisions of the contract prevail. Recourse to the common law is not required.  In some circumstances, the contract may require mitigation, but where it does not the innocent party is entitled to what was agreed. The guilty party is not entitled to graft onto the bargain struck by the parties additional terms that dilute or modify the entitlement of the innocent party.

The case is a good reminder about the importance of carefully drafted termination provisions. If they want to preserve the employee’s duty to mitigate, employers should ensure that any contractual termination provisions which require a severance payment (and which exceeds minimum statutory standards) include an express obligation on the employee to seek and obtain reasonable new employment as a condition of the payment.