Court of Appeal

Silence on Duty to Mitigate Costs Employer

The Ontario Court of Appeal recently held that an employmentagreement which provides for a set notice period or pay in lieu upontermination relieves the employee of any duty to mitigate, unless the agreementexpressly contemplates that duty.

The parties entered intoa written employment agreement which provided that the employee would receive six months’ notice or pay inlieu if his employment was terminated without cause. The agreement was silentwith respect to any duty to mitigate. The employer terminated his employment withoutcause and, approximately two weeks after the termination, he found a newposition at the same salary. Learning of this, the employer stopped furtherpayments on the basis that the employee had mitigated his losses by obtainingalternate employment.

The employee commenced anaction for the full six months, but was unsuccessful at trial. However, the Courtof Appeal found that the trial judge erred in determining the parties intended,at the point of contracting, that mitigation would be applicable to thecalculation of damages upon termination.

The Court said that when parties contract for a specified period of notice or payinlieu, they are choosing to opt out of the common lawapproach applied in Bardal and similar cases. As aresult, parties should not be taken to be attempting to replicate a common lawperiod of reasonable notice, which is subject to the duty to mitigate. Whether the amount in question is seen as liquidateddamages or as a contractual sum, the Court found mitigation to be irrelevant.

Paramount in the Court’sreasoning is the notion that if the parties intend to incorporate the duty tomitigate when they enter into an employment agreement specifying a fixed amountof notice upon termination, that duty must be expressed in clear and specificlanguage in the contract.

Bowes v. Goss Power Productions Ltd.,2012 ONCA 425