Canadian Lawyer InHouse

By Henry Dinsdale and Jeff Goodman Time to revisit existing contracts? Mitigation does not reduce fixed term notice period entitlements. find and accept comparable employ- ment during the common law notice period. Remuneration earned from the new employer mitigates the damages recoverable from the former employ- er. Where an employment contract is silent on mitigation, in practice, most employers have assured that, like other contract damages, the discharged employee's damages for breach of the employment contract are subject to mitigation should the employee find another job. Until recently, the case law in Ontario A n employee dismissed without cause or with insufficient notice gen- erally has a duty to make reasonable efforts to has supported employers on this point. However, in Bowes v. Goss Power Products Ltd., the Ontario Court of Appeal has firmly said no — mitigation by the employee does not reduce an employer' at Goss Power Products Ltd. in the fall of 2007 as vice president, sales and market- ing. His employment contract had typical fixed-term notice periods on a sliding scale based on years of service. When his employment was terminated, the ter- mination letter outlined that he would receive salary continuation for six months' pay in lieu of notice, but he was also required to seek alternative employment during the notice period and the notice liability for pay in lieu of a fixed term notice period in an employment contract, unless the contract specifically states oth- erwise. Peter Bowes began his employment s period was subject to mitigation. Shortly after his termination, Bowes found new employment at the same sal- ary. Goss Power ceased payments for pay in lieu of notice after complying with the statutory minimum. Bowes sued for breach of contract claiming entitlement to the entire six-months of pay in lieu of notice. The court at first instance found that there are clear advantages in contract- ing for a pre-determined notice period, including a cap on the amount employ- ers will need to pay upon termination without cause; guaranteed entitlement for the employee; and the avoidance of litiga- tion. The failure of the parties to address mitigation in the agreement indicated to the Court that they did not intend for it to apply. Leaving mitigation as a live issue diminishes the certainty and finality that fixed term notice periods are designed to provide. In essence, the Court of Appeal has The Court of Appeal also considered a fixed term notice period in an employ- ment contract is subject to the duty to mitigate unless the agreement, either directly or by implication, states other- wise. Emphasizing the intention of the parties, the court held that the language of Bowes' employment contract did not rebut the presumption that mitigation would apply. To most this would be a logical result. At the appeal court, Chief Justice determined that where an employment agreement provides for a specific period of notice upon termination without cause, the employer will still be liable for the entire period of contractual notice even if the employee gains new employment during the contractual notice period. If the parties intend mitigation to apply upon termination, they are free to express that intention with clear language in the employment contract. This decision poses difficulties Winkler overturned the lower court's decision holding that it was a mistake to conflate fixed term contractual notice periods with common law reasonable notice. Rather, they are distinct regimes and, as such, there should be no presump- tion of mitigation when interpreting fixed term contractual notice periods. In determining that a fixed term notice period or payment in lieu is not equivalent to common law damages for reasonable notice, the Court of Appeal reasoned that by agreeing to a specific period, parties are choosing to opt out of the common law approach. Employment agreements that set terms of notice within termina- tion provisions should be treated as fixing liquidated damages, which are not subject to the duty to mitigate. for employers who have not expressly addressed mitigation in their employment agreements. Relying on prior Canadian jurisprudence and despite what they may have intended, employers who agreed to a fixed notice period upon termination, but were silent on mitigation, may now be subject to contracts that do not limit the employer' mitigates. Should employers wish to alter such existing employment contracts in light of the Bowes decision, they will have to provide additional consideration to the employee. The landscape on this issue has s liability if the employee shifted and employers should not only consider amendments to contracts for future employees, but also look for opportunities tracts. IH Henry Dinsdale and Jeff Goodman to revisit existing con- are labour and employment law partners with Heenan Blaikie LLP in Toronto. CANADIANLAWYERMAG.COM/INHOUSE OCTOBER/NOVEMBER 2012 • 11

• Cover