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No Duty to Mitigate Contractually Fixed Notice Periods

Posted On: January, 21 2015

In the recent decision, Bowes v. Goss Power Products Ltd., 2012 ONCA 425 (CanLII), a five-member panel of the Ontario Court of Appeal unanimously ruled that there is no duty to mitigate if an employment agreement contains a fixed-term notice provision and the agreement is silent with respect to mitigation.

Prior cases had ruled that a contractually-fixed notice period was subject to the same mitigation requirements as would a notice period fixed by a judge at common law.  So for example, if your employment contract said that you were entitled to 6 months of pay in lieu of notice, and importantly, did not explicitly require you to attempt to mitigate during that 6 month period, you would be still be expected to attempt to mitigate by finding another job and any earnings you received during the 6 month period would reduce the employer’s obligation to you to the extent of whatever you earned.

In Bowes the Court of Appeal rejects that approach, and confirms that if the parties negotiate a fixed notice period, with no reference to mitigation, then the departing employee is entitled to the full notice period, not subject to mitigation.  This means that if your contract provides you with a fixed notice period of 6 months, is silent with respect to mitigation, and you find a new job one week after being dismissed, you still get to keep the 6 months of notice pay in addition to your income from your new job.

The Court of Appeal ruled that some of the earlier decisions which had found a duty to mitigate applied to a fixed notice period had erred “by treating a contractually fixed term of notice as effectively indistinguishable from common law reasonable notice.”  The Court of Appeal held that those earlier decisions were also incorrect in presuming that mitigation was applicable unless there was an explicit contractual term to the contrary.  In its view, mitigation is irrelevant in cases where an employment agreement contains a fixed entitlement on termination (and no express requirement to mitigate).

We recommend that you seek independent legal advice whenever signing an employment agreement upon hiring, or considering whether to acknowledge acceptance of a severance proposal upon termination

 

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