Where an employee consults on the side or has a second job, can such income post-termination count as mitigation income? According to the B.C. Court of Appeal in Pakozdi v. B&B Heavy Civil Construction Ltd., 2018 BCCA 23 (PDF), 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 started out 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 on the side, during his free time, for other businesses. 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 he did, and earned more consulting income as a result.
The Plaintiff initiated a wrongful dismissal action against B&B and was ultimately awarded five months' pay in lieu of reasonable notice. The notice period was extended by a further three months, for a total of 8 months' pay, on the basis of the Plaintiff's medical condition and the difficulties the Plaintiff 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 a previous B.C. Supreme Court decision - Redd's Roadhouse Restaurants Ltd. V. Randall, 2014 BCSC 1464 (PDF) - which established that it was proper to exclude earnings from a second job from the calculation of damages for wrongful dismissal from the first job where an employee, to the knowledge of the employer, maintained this other employment during his or her employment with the primary employer.
Court of Appeal Decision
B&B successfully appealed to the B.C. Court of Appeal.
The Court of Appeal found that the trial judge erred when she failed to count the increased consulting income as mitigation income. The Court confirmed that when a terminated employee mitigates his/her losses by replacing his/her employment income with new income that would not have been earned if the employment relationship had continued, such new income will be counted as mitigation income and deducted from any damages awarded for wrongful dismissal. Generally speaking, an increase in income from any side work, consulting work or a second job, for example, counts as new income earned in mitigation of damages. Of course, that 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 is related to some other factor other than the employee's effort such that the employee would have experienced the same increase in income even if he/she had maintained employment with the primary employer, the additional income will not be counted as mitigation income.
The Court of Appeal further concluded that while the notice period awarded by the trial judge - five months - was within the range of reasonable notice for a short service employees in his 50's, the Plaintiff's medical condition was not a proper basis for extending the notice period from five to eight months when the Plaintiff was able to continue to work throughout the notice 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 critically important to consider whether this post-employment income would have been earned but for the termination of the individual's employment. Put another way, was the individual in a position to earn this income as a result of having been terminated or was this income that he/she would likely have earned irrespective of his/her employment status with the primary employer. Income that would have been earned nonetheless is not mitigation income and is, therefore, not to be deducted from wrongful dismissal damages.
This decision is also of use to employers in that 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 impact the employee's ability to secure other employment for it to be considered in the assessment of reasonable notice.