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Knowing Your Employment Contract: Are Termination Provisions Subject to Mitigation?

Posted On: January, 21 2015

A recent endorsement from Justice Whitaker of the Superior Court of Justice underscores the importance of clarifying the terms of an employment contract and its termination provisions prior to accepting an employment contract.

Peter Bowes was laid off from Goss Power Products Ltd. (“Goss”) after 3.5 years of employment. According to his employment contract, Mr. Bowes was entitled to 6 months salary in the event that he was terminated without cause before completing 4 years of service.

The employment contract did not explicitly refer to Mr. Bowes’ duty to mitigate (i.e. Mr. Bowes’ duty to seek alternate employment in the event of termination). Two weeks after his termination, Mr. Bowes secured alternate employment at the same level of pay. He was therefore considered to have “fully mitigated” within two weeks of his termination.

In an application to the Superior Court, Mr. Bowes asked the Court to determine whether Goss was required to pay him the 6 months salary specified in the contract, despite the fact that he had found a new job.

The Court agreed with Goss, the employer, that Mr. Bowes was not entitled to the full 6 months notice pay because he had secured alternate employment at the same rate of pay.

As Justice Whitaker explained, even though an employee and an employer may have agreed on a reasonable notice period in the event of termination, the principles of mitigation apply when calculating a terminated employee’s actual damages from lost wages and associated entitlement to notice pay.

The Court held that clear contractual language was required in order to rebut the presumption that mitigation principles apply. In other words, Mr. Bowes would only be entitled to keep the 6 months pay after finding a new job if the employment contract explicitly stated that mitigation principles did not apply.

It is important to also note that mitigation principles do not apply to Employment Standards Act statutory minimums for both termination pay and severance pay. This means that a terminated employee is, as a general rule, still owed their minimum standard termination and severance pay even if he or she secures alternate employment within the statutory notice period.

 

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