On March 7, 2014, the Ontario Court of Appeal released its decision in Farwell v. Citair, Inc. (General Coach Canada) (Farwell), shedding further light on the circumstances in which a departing employee will be required to mitigate damages by continuing to work in a new role with the employer who terminated him.

This aspect of the duty to mitigate has raised many questions since the release of the 2008 Supreme Court of Canada decision in Evans v. Teamsters Local Union No. 31 (Evans). That decision confirmed that an employee claiming wrongful dismissal must mitigate his damages by continuing to work for the same employer where such an opportunity is offered and where the opportunity is one that a reasonable person would accept. The critical element of this test is that an employee will not be required to mitigate by continuing to work in an atmosphere of hostility, embarrassment or humiliation.  Where an employee refuses an offer to continue working that is reasonable, they can be found in breach of their duty to mitigate, putting their entitlement to damages for wrongful dismissal at risk.

Background:

Farwell involved an employee who, at the age of 58 and after 38 years of service, was transferred from the role of Operations Manager/VP Operations to the role of Purchasing Manager due to a corporate restructuring. Mr. Farwell did not accept the new role and subsequently claimed that he had been constructively dismissed. The employer later argued that Mr. Farwell was obliged to accept the role of Purchasing Manager during the notice period as part of his duty to mitigate.

The trial judge accepted that Mr. Farwell’s diminished role in the company had resulted in a significant change in his responsibilities and duties and a loss of status and prestige, such that he had been constructively dismissed.  The notice period was set at 24 months. The trial judge also dismissed the employer’s argument that Mr. Farwell had not mitigated his damages because he declined the transfer role.

The Court of Appeal’s Decision:

The Court of Appeal upheld the trial judge’s decision in all respects, focusing specifically on the issue of whether the employee had failed to mitigate his damages by declining the transfer offer and not continuing in the role of Purchasing Manager during the notice period.

The Court of Appeal held that the employer had not properly triggered the mitigation duty contemplated by Evans (i.e. the requirement to accept an offer of continuing employment). To trigger this duty, the employer was obliged to offer Mr. Farwell a clear opportunity to continue to work during the notice period after he declined the position of Purchasing Manager and claimed constructive dismissal. In the absence of any evidence that the employer had extended such an offer after the dismissal, Mr. Farwell could not be found in breach of his mitigation obligations by not continuing to work.

Our views:

Farwell provides a further gloss on the circumstances in which employers may rely on a breach of the duty to mitigate in constructive dismissal cases where continuing employment may be an option. In these cases, employers must ensure that a formal offer of continued employment is made following the event which triggers the constructive dismissal. In the absence of such an offer, the employer will not be able to argue that a departing employee had an obligation to continue to work in a new or changed role during the notice period, and, by extension, that a breach of this duty would justify a reduction in the employee’s entitlement to damages.