If an employee is terminated without cause, but finds another job shortly thereafter, is the employer still liable for damages to the former employee? In Bowes v Goss Power Products,1 the Ontario Court of Appeal has held that, in some circumstances, the employee may be entitled to full recovery, regardless of the re-employment.
In 2007, Goss Power Products hired Peter Bowes. The employment agreement stated that Goss was entitled to terminate Bowes’ employment without cause by paying him six months’ salary. The contract also stated that Bowes released Goss from “any and all claims whatsoever which the employee may have arising out of the termination” except for those under the employment contract.
In 2011, Goss terminated Bowes’ employment without cause and without notice. The letter of termination stated that Goss would continue to pay Bowes his regular salary for six months. The letter also stated that Bowes had an obligation to seek new employment and to advise Goss immediately if he found another job.
Less than two weeks after he was terminated, Bowes began a new job at the same salary he had earned at Goss. Goss informed him that because he had mitigated his damages, it would pay only the statutory minimum of three weeks’ salary in lieu of notice. However, Bowes claimed that his employment contract with Goss entitled him to six months’ salary, regardless of mitigation.
Bowes applied to the Ontario Superior Court to resolve the dispute. Justice Whitaker of the Superior Court held that the employment contract did not release Bowes from his duty to mitigate his damages upon termination. Justice Whitaker, applying recent case law in Ontario, concluded that since the contract was silent as to mitigation, mitigation was to be implied into the contract in the same manner as if the common law applied. In other words, there was no difference, in Justice Whitaker’s view, between a contractual and a common law notice period: mitigation applied equally to both.
As Bowes had successfully mitigated his damages, he was entitled only to the statutory minimum of three weeks’ pay in lieu of notice.
The Ontario Court of Appeal disagreed. The five-justice panel held unanimously that since the parties had agreed to a fixed notice period but made no specific reference to mitigation, Bowes was entitled to the full six months’ pay. The Court held that by agreeing to a fixed term of notice, the parties had opted out of the common-law approach, which would have required the employee to mitigate his damages. The Court pointed out that although the employer could have specifically contracted for a mitigation provision in the employment agreement, it did not do so: “there is nothing unfair about requiring employers to be explicit if they intend to require an employee to mitigate what would otherwise be fixed or liquidated damages”.
The Court of Appeal found it significant that employers generally enjoy superior bargaining strength when drafting an employment contract. The Court held that since the employer is in a better position to protect its interests, it is fair to expect the employer to make its rights very clear in the employment agreement. The Court held: “It would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages and then allow the employer to later seek to obtain a lower amount at the expense of the employee by raising an issue of mitigation that was not mentioned in the employment agreement”.
The Court of Appeal also held that the release provision indicated that “the parties intended that mitigation would not be required unless the agreement expressly stipulates to the contrary”. The Court did not find it significant that the release provision only freed the employer from any common-law obligations to the employee, and not vice versa.
What is the significance of this decision for employers who wish to minimize their obligations to terminated employees? A fixed notice period can provide the employer with certainty and finality, but it can also free the employee from the common-law duty to mitigate his/her damages. In response to this decision, employers should review their standard form contracts, to determine whether they contain mitigation obligations. If they do not, consideration should be given to inserting a mitigation requirement into the contract, if that is the employer’s expectation (subject to ensuring that the employee still receives all minimum employment standards entitlements). Obtaining legal advice from an employment lawyer can minimize the risk of unintended consequences.