BC Court of Appeal

Duty to Mitigate Not Implied into Contractual Severance Clause

Employers may be interested in reviewing and updating their employment contracts in light of the British Columbia Court of Appeal decision in Maxwell v. British Columbia, 2014 BCCA 339. In Maxwell, the Court confirmed that where a written employment contract contains an express severance clause entitling an employee to a specified amount of compensation in lieu of notice, the employee is not required to mitigate unless the duty to mitigate is imposed by the employment contract. With the Court’s decision, the law in British Columbia on this point is now settled.

The employee, Beverley Maxwell, worked for the British Columbia College of Teachers pursuant to a written employment contract. The contract contained an express term setting out how much notice or compensation in lieu of notice she would receive if her employment was terminated without cause. The termination clause contained a formula explaining how compensation would be calculated. Importantly, the contract was silent on the duty to mitigate.

In the fall of 2011, the College was to be dissolved by legislation effective January 2012. The functions of the College were to be taken over by the successor entity, the Teachers’ Regulation Branch, a branch of the Government of British Columbia. Ms. Maxwell was offered comparable employment with the Branch. She declined the offer of new employment.

Ms. Maxwell subsequently commenced an action for wrongful dismissal alleging that the dissolution of the College resulted in the termination of her employment. Among other things, the College argued that Ms. Maxwell failed to mitigate by accepting the Branch’s offer of employment. Ms. Maxwell argued that because her contract did not impose a duty to mitigate, she was entitled to the severance payment provided for in her contract. Essentially, she argued mitigation principles had no application to her contract.

At trial, the court agreed with Ms. Maxwell, holding that the dissolution of the College resulted in Ms. Maxwell’s dismissal without cause. It awarded Ms. Maxwell her full contractual severance on the basis that her contract did not impose a duty to mitigate. The trial decision was upheld on appeal to the BC Court of Appeal. In so doing, the Court of Appeal confirmed that the law in this area is now settled:

“The law in British Columbia is well settled that where there exists a contractual severance provision, a dismissed employee is entitled to the specified amount and is not required to mitigate absent a duty to do so imposed by the contract.”

Maxwell represents an important clarification and confirmation of the state of mitigation law in British Columbia. While the duty to mitigate applies at common law to unwritten employment contracts, and to other employment contracts where the amount of compensation in lieu of notice is not specified in the contract, when the parties contract for a specified amount of severance, mitigation will not apply unless the parties include mitigation terms in the contract.

In light of Maxwell, employers in BC are wise to review and update their employment contracts to ensure that they contain express mitigation terms.

Maxwell v. British Columbia, 2014 BCCA 339

Questions relating to the content of the article may be directed to Nicole Toye or Rodney Sieg.