Canadian Lawyer

September 2022

The most widely read magazine for Canadian lawyers

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Page 11 of 51

10 MITIGATION SPECIAL PROMOTIONAL FEATURE The duty to mitigate still exists LITTLE FRUSTRATES an employer more than having to pay a dismissed employee common-law notice while the employee fails to take reasonable steps to find a new job and mitigate their losses. Subject to limited excep- tions, a dismissed employee has a duty to mit- igate any damages they may suffer by making reasonable efforts to find comparable replace- ment employment. Mitigation is important to employers because income earned from the replacement work reduces the former employer's common-law termination liability. In recent years, the law around mitigation has become more complicated, leading some employers to give up on the concept entirely and simply pay out the full common-law ter- mination entitlement. However, knowing when and how to require a dismissed employee to mitigate their damages can save an employer thou- sands of dollars in separation packages. It is impossible to cover all mitigation issues here. However, as a starting point, every employer should have at least some under- standing of three key concepts: i) what consti- tutes comparable replacement employment; ii) whether income from a "side hustle" counts toward mitigation income; and iii) the impact of contractual terms on the duty to mitigate. What constitutes comparable replacement employment? Comparable employment means neither identical employment nor any employment. If a former employee has a duty to mitigate their damages, they are not entitled to hold out for perfect employment, nor are they obligated to accept any position available to them. An employee is entitled to focus their job search on "comparable" roles. The Court of Appeal for Ontario recently addressed the meaning of "comparable" in Humphrey v. Mene Inc. The court held that, while a former employee may limit their search to comparable roles, this does not mean the roles must be "identical." 1 In this case, the employee was terminated from her role as chief operating officer (COO), and her wrongful dismissal action proceeded by way of summary judgment. The evi- dence before the motion judge confirmed that, seven months post-termination, the employee had declined an offer of employ- ment in a vice president e-commerce role because it was not a "broad-based senior leadership role" nor, according to the employee, was it financially similar to her former role as COO. The motion judge found the employer had "not provided the Court with persua- sive evidence or analysis on whether this position was comparable in terms of role, as well as in terms of all aspects of the remu- neration including stock options, bonuses, etc." Notably, the burden to establish that an employee has failed to mitigate rests with the employer. The court found the former employee was entitled to twelve months' reasonable notice but reduced this by one month because the employee had done lit- tle to look for new employment in the six months post-termination. On appeal, the court overturned the motion judge's decision on the mitigation issue, holding the judge had "set the bar too high." While the appeal court acknowledged the employer's burden to establish a failure to mitigate is a "heavy one," in this case it was sufficient that the employer had established that the former employee had been offered a senior management position with compen- sation comparable to or greater than what she had earned with the employer. The court reduced the notice period from eleven to six months' compensation. What about a "side hustle"? Increasingly, employees may have a "side hustle" – another income stream, be it con- sulting, a "gig" job or other employment. Is this mitigation income? If the secondary stream existed pre-ter- mination, this income will not be counted as mitigation income. However, if a former employee ramps up their secondary income post-termination, the increase in compen- sation may appropriately be considered mitigation income. In a 2018 case before the British Columbia Court of Appeal, 2 a former employee was entitled to five months' common-law notice. Prior to his termination, the employee had a side hustle through which he earned up to $9,600 per month. Post-termination and throughou the five months' notice period, he increased that income to roughly $80,000 (equivalent to $16,000 a month). The appeal court held that the difference between these two amounts earned over the five months' notice period (estimated by the court to be $30,000) was appropriately characterized as replacement income, and so it was deducted from the notice award. Brought to you by Matthew Badrov and Priya Sarin Employers should not give up on this important cost-saving tool

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