Generally, employees who are dismissed without cause are entitled to damages for a period of common law reasonable notice. However, where an employee obtains a new job during the notice period, the amounts earned are usually deducted from the amounts that would otherwise be payable as mitigation.

In Brake v PJ-M2R Restaurant Inc., 2017 ONCA 402 [Brake], the Ontario Court of Appeal recently held that there are exceptions to this rule even where the income is earned during the statutory notice period, if the former employee would have been able to earn the new income while still employed in his or her previous position.

In the Brake decision, Ms. Brake was dismissed from her position as a manager of a McDonalds store after 20 years. She was terminated after she refused a demotion based on a single unsatisfactory performance review following a long period of excellent performance. The Ontario Court of Appeal upheld the trial judge’s conclusion that there was no cause for dismissal and to award statutory and common law damages of 20 months’ salary.

While Ms. Brake had been employed at McDonalds, she also worked at another employer. Following her dismissal she continued to work in this position. She also found work at Tim Horton’s and later at Home Depot. All of these positions were non-managerial.

Income from an “Inferior Position”

The trial judge decided that none of the income Ms. Brake earned after her dismissal should be deducted because the positions in which she worked were inferior to her prior position as a manager.

This was rejected on appeal, with the Ontario Court of Appeal affirming the rule that employment income actually earned during the notice period is generally to be treated as mitigation of loss regardless of whether it was earned from employment in an “inferior position.” An employee may not be obligated to accept employment in such a position, but having done so, the income earned must ordinarily be deducted as damages.

However, the court identified two important exceptions to this principle.

1. Income earned during the statutory notice period

The Ontario Court of Appeal concluded that income earned during the period covered by statutory entitlements should not be deducted. The court reasoned that the pay-in-lieu of notice and severance benefits of Ontario’s Employment Standards Act were minimum benefits owed to an employee immediately upon termination – regardless of whether the employee later mitigated his or her loss. Therefore, income earned during the portion of the notice period attributed to these statutory benefits did not reduce the amount of damages.

British Columbia’s Employment Standards Act, Alberta’s Employment Standards Code and Manitoba’s Employment Standards Code contain similar provisions requiring that an employee be provided with notice of termination or pay-in-lieu of notice. As in Ontario, any pay-in-lieu of notice is immediately payable to the employee. Therefore it is likely that income earned during the notice periods set out in these statutes will also not be deducted from damages awards.

In Saskatchewan, however, The Saskatchewan Employment Act expressly authorizes the Director of Employment Standards to take account of mitigation income earned by an employee in the course of determining an employee’s entitlement to statutory notice. As such, since the legislation in Ontario lacks this provision, the Ontario Court’s determination in this regard will likely be less persuasive in Saskatchewan due to the differences in the relevant legislation.

2. Income That Could Have Been Earned Before Termination

The second exception to the deduction of post-termination income occurs when the income earned is not a substitute for the lost income because the plaintiff could have earned both the new income and income from his or her former employment at the same time. If a terminated employee continues to earn income from a part-time position they already held prior to their termination, this income cannot be deducted from damages as it is not a substitute for the income that was lost.

The Court of Appeal also held that income from a new part-time position may not be deductible if the new employment would not have been mutually exclusive with their former employment. However, the Court also acknowledged that if an employee increased their work with an existing employer, this could result in a portion of the amount earned being deducted from the damages award.

The Court of Appeal concluded that all of Ms. Brakes’ income was attributable to work which was not mutually exclusive with her former position, and therefore decided that no amounts were deductible.

Implications

Brake provides new guidance on when post-termination income is not mitigation of damages. Dismissed employees may now argue that income earned after their termination was not a true substitute for their former employment income and therefore should not be used to reduce damages.

Employers must meet a significant obligation in order to have wrongful dismissal damages reduced due to mitigation. It is important that evidence be carefully presented regarding both pre-termination and post-termination income and hours of work, particularly when the former employee is working part-time. Failure to do so may lead the court to reject the mitigation argument, leaving the employer liable for the full amount of common law damages.