Four years ago, the Ontario Court of Appeal released its decision in Brake v PJ-M2R Restaurant Inc.[1] Despite this decision and the passage of time since, uncertainty remains in some quarters as to its proper application to mitigation earnings generated during the common law "reasonable notice" period.

In Brake, the employer appealed the trial decision in which 62-year-old Esther Brake was awarded damages representing 20 months of compensation after 20 years of service in a management capacity. The Court of Appeal did not apply any of the $46,019.66 in mitigation earnings the employee received during the 20-month period post-employment in reduction of the total award of $104,499.53.

Writing for the majority, Justice Gillese cited with approval the following general proposition:

[96] An employee who is dismissed without reasonable notice is entitled to damages for breach of contract based on the employment income the employee would have earned during the reasonable notice period, less any amounts received in mitigation of loss during the notice period: Sylvester v. British Columbia, 1997 CanLII 353 (SCC), [1997] 2 S.C.R. 315, at paras. 14-17.

Justice Gillese went on to hold:

[99] To the extent that the trial judge was suggesting that the court did not need to consider whether income received from a job that was inferior to the one from which the employee was dismissed was mitigation income, I respectfully disagree. That approach does not accord with the principle that employment income earned during the notice period is generally to be treated as mitigation of loss.

However, Justice Feldman in her concurring reasons differed from the majority on the issue of "earnings from inferior positions":

[158] It follows, in my view, that where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.

While the differing reasons of the Court of Appeal have created a degree of confusion, some courts have since adopted Justice Feldman's principal by refusing to deduct inferior earnings.[2]

The statutory entitlement period

Notably, the confusion arising from this decision is not limited to the issue of such earnings from so-called inferior positions. The larger debate, which followed the case, was about the Court's decision that "…employment income earned during the statutory entitlement period is not subject to deduction as mitigation income".[3]

While the common law entitlement is intended to include the statutory entitlements under the Employment Standards Act, 2000[4] (the "ESA"), such statutory entitlements are not "damages" and are payable whether or not the employee is able to mitigate her damages the day after her employment was terminated.

However, what period the "statutory entitlement period" covered remained ambiguous – i.e. whether such period included not only the notice provision in section 57 of the legislation, but also the period matching the severance payment entitlement in section 64.

While Brake failed to clarify this issue, the Court of Appeal confirmed that the onus is on the employer to adduce evidence with respect to the mitigation issue and stated:

…"Unfortunately, the record does not permit this court to determine the precise number of weeks to which she was statutorily entitled. Consequently, the court cannot determine when in 2013 the statutory entitlement period expired."[5]

The Ontario Superior Court specifically addressed this issue the following year in Robinson v H. J. Heinz Company of Canada LP.[6] In this case, the plaintiff, Karen Robinson, was constructively dismissed from her position as an accountant after 15.8 years of service. Thereafter, she immediately obtained alternate employment. Although the parties agreed to a 15-month common law entitlement, they disputed the employer's entitlement to offset the mitigation earnings.

At paragraph 71 of that decision, Justice Stinson clearly states, "…no mitigation income received in relation to the periods represented by both termination and severance pay under the ESA is deductible from the plaintiff's overall award."

In 2019, Justice Nishikawa reached a similar result in Groves v UTS Consultants Inc.,[7] where, without any debate on the issue, she held "[i]n Mr. Groves' case, the statutory entitlement period extended for 32.75 weeks to mid-May 2018. Any amounts earned during that time would not be deducted from his damages." [8] As the section 57 entitlement in that case was eight weeks, the decision must therefore also include 24.75 weeks of entitlement under section 64 of the ESA (which represented the severance pay entitlement after 24.75 years of service).

Accordingly, it appears that any confusion over the "statutory entitlement period" has been resolved and that mitigation earnings post termination that fall within the combined period represented by the entitlements under both section 57 (termination pay) and section 64 (severance pay) of the ESA are not to be deducted from an employee's common law entitlement.

Gowling WLG focus

While wrongful dismissal cases could now pose increased costs to employers, these decisions illustrate the importance of producing evidence as to an employee's statutory entitlement to termination and severance pay. Further, employers must clearly differentiate common law and statutory notice periods, as the distinction will determine the impact of any mitigation income. Moving forward, in order to minimize risks, employers should engage counsel when carrying out employee terminations, or when wrongful dismissal litigation arises.