Employers must prove both elements of two-part test
When an employer and an employee are in court over a wrongful termination dispute, and the court determines the employee was wrongfully dismissed, the next step is to assess the reasonable notice damages that should be awarded. The primary objective of these damages is to restore the employee to the position they would have been in had the wrongful dismissal not occurred. To do this, courts consider several factors, including the employee’s age, tenure, and job level, among other relevant aspects.
However, employers often attempt to reduce the damages awarded by arguing that the employee failed to mitigate their losses. While this defence is commonly raised, proving a failure to mitigate can be challenging, even under the civil standard of the balance of probabilities.
This article explores the duty to mitigate in wrongful dismissal cases, detailing its scope, who bears the burden of proof, and what is required to successfully argue that an employee has failed to mitigate their damages.
An employee who has been wrongfully dismissed is entitled to receive reasonable notice damages. However, this entitlement is subject to the duty to mitigate, which requires the dismissed employee to make reasonable efforts to secure comparable alternative employment.
The seminal case on post-dismissal mitigation in Canada is Red Deer College v. Michaels,1975 CanLII 15, a decision of the Supreme Court of Canada. The case involved two college instructors who were summarily dismissed without cause from Red Deer College. As the employees had contracts for the following year and claimed tenure, they sued the college for wrongful dismissal. The then-Alberta Appellate Division initially awarded them 12 months’ salary, after which the employer appealed to the Supreme Court.
Before the Supreme Court, the employer argued the employees had a duty to mitigate their damages by seeking other employment. Although the top court agreed the employees had such a duty, the burden of proving that they failed to do so rested on the employer. Ultimately, the employer’s appeal was dismissed as the court found the employer had failed to discharge this burden.
The rationale behind the duty to mitigate damages was concisely summarized by the Supreme Court of Canada in British Columbia v. Canadian Forest Products Ltd., 2004 SCC 38:
“Losses that could reasonably have been avoided are, in effect, caused by the plaintiff’s action, rather than the defendant’s wrong. There is also an underlying policy of avoiding economic waste. Thus, two principles underlie the requirement to mitigate: the plaintiff should not recover for a loss that he could reasonably have avoided, and the defendant should not be forced to pay the plaintiff where the plaintiff has been wasteful after the fact of the wrongdoing.”
This means an employee cannot simply remain unemployed and claim full compensation; they must actively seek new employment. However, the burden of proving that an employee has failed to mitigate lies with the employer.
For an employer to successfully argue that an employee has failed to mitigate, they must prove two elements:
The employer must establish both of these elements on the balance of probabilities (i.e., it is more likely than not that both conditions are met). Even if an employer proves that the employee made little or no effort to find new employment, they must also demonstrate that the employee would have found comparable work if they had made reasonable efforts.
This high burden means that proving a failure to mitigate is not easy. Courts do not require perfection in an employee’s job search efforts but rather reasonable and diligent attempts to find suitable employment.
The 2023 decision from the Ontario Superior Court of Justice in Jimmy How Tein Fat v. PRGX Canada Corp., 2023 ONSC 6374, illustrates how Ontario courts analyze mitigation in wrongful dismissal claims.
The plaintiff employee was terminated after 29 years with PRGX Canada Corp. due to restructuring. At the time of dismissal, he was 63 years old and was paid 34 weeks’ severance, which was the statutory minimum under Ontario’s Employment Standards Act, 2000.
The employee filed a wrongful dismissal claim, arguing that he was entitled to 24 months’ severance due to his age, experience, and specialization. He sought damages for the difference between the severance he received and what he believed he was owed.
The employer countered by arguing that the employee was not in a senior role and was only entitled to 16-18 months’ severance. More importantly, the employer claimed the employee had failed to mitigate his damages because he had not made sufficient efforts to secure comparable employment within his specialized field. As a result, the employer argued the employee should only receive eight months’ severance, effectively reducing his entitlement to an amount equivalent to what he had already been paid.
To determine whether the employee had failed to mitigate, the court examined his job search efforts and whether comparable positions were available. The employee presented a log of his job search, detailing contacts he had reached out to and efforts to upgrade his skills.
Although the court noted that he could have started his job search earlier, it emphasized that the standard for mitigation is not perfection. The employee’s log demonstrated a sustained effort to seek senior-level employment.
The court noted the employer failed to provide evidence that comparable jobs were available during the notice period. No job postings, industry reports, or expert testimony were presented to suggest the employee could have secured a comparable position had he tried harder. Additionally, the employer had not offered any assistance to help the employee find work, which weakened its argument that he had failed to mitigate.
Since the employer failed to satisfy the second part of the test - proving that suitable jobs were available - the court ruled the employee had not failed to mitigate. Consequently, his reasonable notice damages were not reduced.
While determining whether an employee has mitigated their losses is highly case-specific, case law provides some unified takeaways for both employers and employees.
For employees:
For employers:
Paulette Haynes is the founder of Haynes Law Firm, a boutique employment law firm in Toronto.
