Cutting Your Losses: How far do employees have to go to mitigate?
Employment, like most things in life, is a two-way street. Throughout the working relationship, employers and employees each have rights and responsibilities to make work run smoothly. Employees are responsible, broadly speaking, for doing the work, and employers are responsible, again broadly, for looking after their employees.
Those rights and responsibilities do not necessarily stop just because an employee has been terminated. In most cases (save for some specific examples), an employer is responsible for paying a terminated employee ‘reasonable notice’ upon their termination. Reasonable notice is defined by an employee’s contract, but can also be defined by other factors including their age, length of service, the nature of the work they performed, and their ability to find similar new employment. When employment lawyers agree to represent terminated employees, we’re often fighting to improve this reasonable notice period, or, in plain language, whatever the employer owes the employee.
Hang on, I’m going somewhere with this, I promise.
What most employees don’t know is that they may also have a duty in this process. When an employee is terminated, they also have a responsibility, which is to go and look for new work.
It’s called mitigation. In most areas of law, if you have suffered some sort of financial loss, you have a duty to minimize your total losses where possible. In the employment context, that means that a terminated employee is, most often, responsible for finding another job.
Like anything else in law, this is not always the case. If a terminated employee accepts a severance package that is presented to them, many offer some form of lump sump compensation, or some other compensatory setup that will provide the employee some financial cushion. However, that cushion is usually a limited amount, and when the money does run out, new work is required anyway. Similarly, while employment insurance (if eligible) is available, it too is only designed to support an individual while they continue their search.
Yet for my clients, if we are going to work together to fight for a longer notice period, I inform them that their primary responsibility is to look for work. While we’re ideally aiming to negotiate a settlement that has no bearing on whether they find a job or not, they do have to look, and it may become a key part of negotiations, especially if things move into the world of litigation.
So, just how far does a terminated employee have to go to mitigate their losses? Well, it’s more important than you may think.
In the recent Superior Court decision of Benjamin v. Cascades Canada ULC, 2017 ONSC 2583, a labourer with 28 years’ experience was terminated when his Scarborough factory stopped production. The employee decided after his termination to go to welding school for six months, since he felt he was at the ‘bottom of the food chain,’ and needed to improve his skills.
When he sued his former employer for 24 months’ pay in lieu of notice, his employer claimed that he was not entitled to any extra damages (on top of what he was owed under the Employment Standards Act) because he failed to adequately mitigate. They claimed that the employee was presented with three comparable alternative jobs with the company in nearby locations, all of which he turned down to go back to school. Consequently, he should get nothing extra.
The Court agreed.
The law comes from a 1975 case called Michaels v. Red Deer College, 1975 CanLii 15, which is still in use today. As this case explained: “The two key issues to be considered under the Michaels test: are (i) whether the terminated employee (i) “exercise[d] proper industry” to consider comparable employment and (ii) if the terminated employee had done so, whether he or she “could have procured” the employment.”
The Employee claimed that he had looked at the other positions with the company but that they were below his previous salary, so he was not interested. The Employer said the positions were right around the same range, leading the Court to conclude that he either did not look hard enough at them, or did not look at all. The Court followed previous similar cases that ruled that an employee who purposely decides not to look for comparable work has failed to mitigate their damages. As a result, his entire case was dismissed.
This case is an interesting one to say the least. It involved a long-service employee, who under different circumstances may have had a reasonable chance at a much longer notice period due to his age and length of service. However, termination damages are effectively a two-way street, and when an employee does not hold up their end of the bargain, it can fall apart like a house of cards.
It is important to note, though, what this case really says. In my own view, the employee’s decision to go back to school should be lauded. After nearly three decades as a labourer, with no clear change of plans in sight, he seized the opportunity to further his education and enhance his skills, which ordinarily would be commendable. However, from an employer’s perspective, the employer should not be held financially responsible for his choice, especially when he made that decision while failing to meet his legal duty. There’s nothing that says that he can’t go back to school – the employer just shouldn’t be forced to pay for it.
For employers, this case highlights the importance of mitigation. Many employment lawyers ask about a former employee’s efforts to look for new work, and if the employee is not making reasonable efforts then it can obviously impact an employee’s settlement. However, most ‘termination packages,’ especially for older employees who are less likely to procure new work, will result in a lump-sum payout that is offered regardless of the employee’s efforts to mitigate. Employers will often remind employees that these offers can be tremendously beneficial based on the challenges involved in mitigation, and this case proves exactly that. Your employment lawyer will work with you to assess a former employee’s mitigation efforts and how they may play into any negotiations.
For employees, understanding your responsibilities upon termination is key. Yes, you are usually entitled to reasonable notice upon termination. Yes, your employment contract is usually not worded in a way that limits you to the ESA. Yes, you may be eligible to more money than an employer has offered you in a ‘termination package’. HOWEVER, your duty to mitigate your losses and make reasonable efforts to look for a new position is equally as important. Your employment lawyer will explain to you what this duty entails, how to document your search properly, and what you need to know moving forward as you work to settle any disputes.
If you’re an employee who’s been terminated, take a bit to let it sink in, then contact me and we’ll set up a consultation to see how I can help. If you’re an employer, please contact me BEFORE you issue that termination so that we can work together to put out a fire before it starts.
The bottom line is that employment law, like most things in life is a two-way street, and if you don’t watch where you’re going then it’s far too easy to walk right into a brick wall.