Duty to Mitigate In Wrongful and Constructive Dismissal Matters

Wrongful and constructive dismissal cases provide damages intended to compensate the former employee for the loss of the reasonable notice period they would otherwise have enjoyed but for the termination. Accordingly, the employee must take reasonable efforts to mitigate their loss.

On Thursday the Supreme Court released Evans v. Teamsters Local Union No. 31, 2008 SCC 20 which dealt with the issue of whether a terminated employee had a duty to take a job offered by the former employer.

The Court held that in some circumstances it will be necessary for a dismissed employee to mitigate damages by returning to work for the same employer. Assuming there are no barriers to re-employment, requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself.

The employer bears the onus of demonstrating both that an employee has failed to make reasonable efforts to find work and that work could have been found. Where the employer offers the employee a chance to mitigate damages by returning to work for the employer, the central issue is whether a reasonable person would accept such an opportunity. A reasonable person should be expected to do so where the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious.

Other relevant factors include the history and nature of the employment, whether or not the employee has commenced litigation, and whether the offer of re-employment was made while the employee was still working for the employer or only after the employee had already left. The critical element is that an employee not be obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation. Although an objective standard must be used to evaluate whether a reasonable person in the employee’s position would have accepted the employer’s offer, it is extremely important that the non-tangible elements of the situation — including work atmosphere, stigma and loss of dignity — be included in the evaluation.

As a side issue the Court found that Wallace damages were not subject to the mitigation requirement

The Court held:

[28] In my view, the courts have correctly determined that in some circumstances it will be necessary for a dismissed employee to mitigate his or her damages by returning to work for the same employer. Assuming there are no barriers to re-employment (potential barriers to be discussed below), requiring an employee to mitigate by taking temporary work with the dismissing employer is consistent with the notion that damages are meant to compensate for lack of notice, and not to penalize the employer for the dismissal itself. The notice period is meant to provide employees with sufficient opportunity to seek new employment and arrange their personal affairs, and employers who provide sufficient working notice are not required to pay an employee just because they have chosen to terminate the contract. Where notice is not given, the employer is required to pay damages in lieu of notice, but that requirement is subject to the employee making a reasonable effort to mitigate the damages by seeking an alternate source of income.

[29] There appears to be very little practical difference between informing an employee that his or her contract will be terminated in 12 months’ time (i.e. giving 12 months of working notice) and terminating the contract immediately but offering the employee a new employment opportunity for a period of up to 12 months. In both situations, it is expected that the employee will be aware that the employment relationship is finite, and that he or she will be seeking alternate work during the 12- month period. It can also be expected that in both situations the employee will find that continuing to work may be difficult. Nonetheless, it is an accepted principle of employment law that employers are entitled (indeed encouraged) to give employees working notice and that, absent bad faith or other extenuating circumstances, they are not required to financially compensate an employee simply because they have terminated the employment contract. It is likewise appropriate to assume that in the absence of conditions rendering the return to work unreasonable, on an objective basis, an employee can be expected to mitigate damages by returning to work for the dismissing employer. Finding otherwise would create an artificial distinction between an employer who terminates and offers re-employment and one who gives notice of termination and offers working notice. In either case, the employee has an opportunity to continue working for the employer while he or she arranges other employment, and I believe it nonsensical to say that when this ongoing relationship is termed “working notice” it is acceptable but when it is termed “mitigation” it is not.

[30] I do not mean to suggest with the above analysis that an employee should always be required to return to work for the dismissing employer and my qualification that this should only occur where there are no barriers to re-employment is significant. This Court has held that the employer bears the onus of demonstrating both that an employee has failed to make reasonable efforts to find work and that work could have been found (Red Deer College v. Michaels, [1976] 2 S.C.R. 324). Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity. In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so “[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious” (Mifsud v. MacMillan Bathurst Inc. (1989), 70 O.R. (2d) 701). In Cox, the British Columbia Court of Appeal held that other relevant factors include the history and nature of the employment, whether or not the employee has commenced litigation, and whether the offer of re-employment was made while the employee was still working for the employer or only after he or she had already left (paras. 12-18). In my view, the foregoing elements all underline the importance of a multi-factored and contextual analysis. The critical element is that an employee “not [be] obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation” (Farquhar, at p. 94), and it is that factor which must be at the forefront of the inquiry into what is reasonable. Thus, although an objective standard must be used to evaluate whether a reasonable person in the employee’s position would have accepted the employer’s offer (Reibl v. Hughes, [1980] 2 S.C.R. 880), it is extremely important that the non-tangible elements of the situation — including work atmosphere, stigma and loss of dignity, as well as nature and conditions of employment, the tangible elements — be included in the evaluation.

[31] I note that the nature of this inquiry increases the likelihood that individuals who are dismissed as a result of a change to their position (motivated, for example, by legitimate business needs rather than by concerns about performance) will be required to mitigate by returning to the same employer more often than those employees who are terminated for some other reason. This is not, however, because these individuals have been constructively dismissed rather than wrongfully dismissed, but rather because the circumstances surrounding the termination of their contract may be far less personal than when dismissal relates more directly to the individuals themselves. This point is illustrated by Michaud in which a bank executive was constructively dismissed as a result of an organizational restructuring. The evidence showed that the bank offered the employee another executive position and was anxious to have him continue working for them. Importantly, there was no evidence that the relationship between the employee and the bank was acrimonious or that he would suffer any humiliation or loss of dignity by returning to work while he looked for new employment. As a result, mitigation was required.

[32] I also note parenthetically that I do not believe that damages awarded by lengthening the notice period because of bad faith conduct in the manner of dismissal (Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701) should ever be subject to mitigation. These damages, though expressed in terms of an extension to the “notice period”, are in fact awarded as a result of the manner in which the employee is terminated and not in recognition of the fact that he or she is entitled to an opportunity to arrange his or her affairs prior to losing all employment income. As a result, the employee’s ability to replace the lost income through mitigation is irrelevant, as this does not alter the suffering caused by the means of dismissal. In my view, Wallace damages ought therefore to be completely exempt from the need to mitigate.