Where an employee consults on the side or has a second job, can his or her income post-termination count as mitigation income? According to the British Columbia Court of Appeal in Pakozdi v B&B Heavy Civil Construction Ltd (2018 BCCA 23), the answer is yes; such income is considered to be mitigation income and will therefore be deducted from any wrongful dismissal damages that are awarded.
The plaintiff was a bid estimator who began as a consultant for the employer, B&B, and later transitioned into more permanent employment. During the course of his employment with B&B, he continued to provide consulting services for other businesses during his free time. B&B was aware of the plaintiff's side work and had no issue with it.
After one year of service, B&B terminated the plaintiff's employment and provided him with two weeks' notice. After the plaintiff was terminated, he increased the amount of consulting work that he performed and earned more consulting income as a result.
The plaintiff initiated a wrongful dismissal action against B&B and was awarded five months' pay in lieu of reasonable notice. The notice period was extended by a further three months for a total of eight months' pay on the basis of the plaintiff's medical condition and the difficulties that he would encounter in trying to secure other employment because of this condition.
The trial judge rejected B&B's argument that the plaintiff had mitigated his damages by increasing his consulting work and therefore his income, following the termination of his employment. In doing so, she relied on the previous British Columbia Supreme Court decision in Redd's Roadhouse Restaurants Ltd v Randall (2014 BCSC 1464), which established that earnings from a second job should be excluded from the calculation of damages for wrongful dismissal from the first job where an employee, to the employer's knowledge, maintained the other employment during his or her employment with the primary employer.
B&B successfully appealed to the British Columbia Court of Appeal.
The court found that the trial judge had erred when she failed to count the increased consulting income as mitigation income. It confirmed that when a terminated employee mitigates his or her losses by replacing his or her employment income with new income that would not have been earned if the employment relationship had continued, the new income will constitute mitigation income and will be deducted from any damages awarded for wrongful dismissal. Generally speaking, an increase in income from any side work, consulting work or second job counts as new income earned in mitigation of damages. This takes for granted that the increase in income can be attributed to an increase in effort made possible by the termination of the employee's employment with the primary employer. If the increase in income relates to a factor other than the employee's effort, such that the employee would have experienced the same increase in income even if he or she had maintained employment with the primary employer, the additional income will not be counted as mitigation income.
The court of appeal concluded that while the notice period awarded by the trial judge (ie, five months) was within the range of reasonable notice for a short-service employee in his 50s, the plaintiff's medical condition was not a proper basis for extending the notice period from five to eight months when he was able to continue to work throughout the period.
Employers should be aware that when considering a former employee's post-employment income for the purposes of calculating mitigation income and potential wrongful dismissal exposure, it is crucial to consider whether the post-employment income would have been earned but for the termination of the individual's employment. In other words, was the individual in a position to earn this income as a result of having been terminated or was it income that he or she would likely have earned irrespective of his or her employment status with the primary employer? Income that would have been earned nonetheless is not mitigation income; therefore, it is non-deductible from wrongful dismissal damages.
The decision is also useful to employers as it confirms that the existence of a medical condition will not automatically result in an elongated notice period. The health issues at play must negatively affect the employee's ability to secure other employment in order for it to be considered in the assessment of reasonable notice.
For further information on this topic please contact Stephanie Gutierrez at Fasken by telephone (+1 604 631 3131) or email (email@example.com). The Fasken website can be accessed at www.fasken.com.
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