'The courts have made it very, very difficult for employers to establish that an employee failed to mitigate': employment lawyer
Employers are more responsible than ever for mitigating post-termination damages, as evidenced by a recent Ontario Superior Court decision.
The case, Jimmy How Tein Fat v PRGX Canada Corp., saw Jimmy How, a 29-year employee serving as an operations VP at the time, terminated as part of a company restructuring. He was given 34 weeks’ notice of termination, which was the minimum statutory amount required.
How sued for wrongful dismissal, claiming that as a senior employee, as well as being 63 years old and in a “niche” position at the time of dismissal, he was entitled to 24 months’ notice.
The judge awarded How the full amount plus lost benefits, bonus and vacation pay, totaling over $1.5 million, less the amount PRGX had already paid.
As employment lawyer Dave McKechnie, partner at McMillan in Toronto, pointed out, the onus is on the employer to prove lack of mitigation, and courts have been more strict on this point in recent years. This includes ensuring – before termination – that there are comparable jobs available in the market.
“There's no hard and fast rule,” McKechnie told HRD. “When courts look at [notice of termination], they look at the period of service, the compensation, the year, the individual’s age and the individual’s position – those are the four main factors they look at in assessing notice.
“But any one of those factors can have many sub-factors, and any one of those factors can tip the [notice] period up or down a couple of months. So it's not an exact science. It's more of an art.”
Assessing mitigation ‘two-pronged test’
As the court pointed out, assessing reasonable damages mitigation is a “two-pronged test”. The first part is proving that the employee did not take reasonable steps to find other employment after termination. The second is proving there was comparable employment available in the market.
Employers are required to prove both prongs of the test, the court said.
As established by the court, PGRX was a niche firm in a niche industry, with few companies offering similar services. How had been working at the company since he came to Canada in 1994. An accountant, How spent his entire Canadian working career at PGRX. In 2019 he was appointed VP of North America Operations and Global Audit Innovation.
PGRX’s main defence was that How hadn’t reasonably mitigated his losses due to the termination, claiming he hadn’t called competitors in their market immediately after the termination.
Due to this failure to mitigate, PGRX claimed, How should have been owed eight months of severance – an amount only slightly higher than he was originally paid.
The court partially agreed but said the onus had been on PGRX to establish this fact beforehand and adjust How’s notice period accordingly, which they did not.
Onus on employer to prove reasonable mitigation did not occur
“Regardless of whether Mr. How acted reasonably or not at the outset of his search, the defendant has failed to establish that he could have obtained a comparable job had he conducted the search as proposed by PGRX,” the court stated.
Because of his highly specialized position at PGRX, How said in his affidavit, there were no comparable positions available for him among the direct competitors of the company, which is why he did not immediately contact direct competitors for employment. PGRX argued that it was “unreasonable” for How to not have conducted a targeted search.
“The courts now very much look at that second part of the test, to say ‘okay, even if the day after, he sent out his resumés, the employer’s got to show that there was a job to be had, and a comparable job,” McKechnie explained.
“So not just that he could find another accountant’s job, but a job with comparable salary, comparable benefits, comparable bonus. The courts have made it very, very difficult for employers to establish that an employee failed to mitigate. When you're talking about a forklift operator, that's pretty easy to do. But when you're talking about higher-level positions, it becomes more challenging.”
Seniority of VP contested in wrongful dismissal claim
“In my view, PGRX was not interested in genuinely helping Mr. How avoid any losses due to his termination. Rather, PGRX was prepared to use what it saw as a gap in Mr. How’s mitigation effort as a means to limit his damage claim,” the Superior Court judge said in their decision.
The decision partly hinged on How’s status as a “senior employee”, which he claimed to be due to his long tenure. PGRX contested this point, claiming that since he didn’t report directly to the Chief Executive Office he was not at the highest level of seniority.
The firm did, however, concede that How had “an important geography – specific operations role”, as he oversaw North American retail operations that accounted for almost half of PGRX’s total revenue. It was also shown that How’s compensation proved he was in fact an executive employee.
In wrongful dismissal claims involving length of notice, courts will take into account length of service, character of employment, and an employee’s age. Older employees should be given longer notice periods since they will have a more difficult time finding employment than younger individuals.
“What I always recommend to clients is, think about how long it would take to find a new person in this position,” McKechnie said.
“You're in the you're in the industry – how do people get these jobs? Is this something that you would only hire through a recruiter? Is that something that you just post on LinkedIn and you get 3,000 applicants? What's customary for the position. And thinking about how you're going to design a path, to that separation package, assuming you don't have an enforceable employment agreement, which is what we always recommend for employers anyway.”