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The Duty to Mitigate: What Happens to Earnings from a Lower Paying Job?

By , July 20, 2018 10:41 am

Losing your job is one of life’s awfully stressful events. Yet, Canadian courts have long recognized the duty of a dismissed employee to seek new employment to mitigate their losses.

The duty to mitigate requires wrongfully dismissed employees to take reasonable steps to minimize the losses they have suffered. Although not usually a burdensome standard to meet, a dismissed employee should be making reasonable efforts to find new employment.

Employees Have a Duty to Mitigate Their Losses

Where an employee finds another position, courts will normally subtract the amount of money earned from such other sources from the reasonable notice period the employee is entitled to from their wrongful dismissal.

There are different ways that employees can mitigate their damages from a wrongful or constructive dismissal. An employee can accept:

  1. Re-employment with the same employer,
  2. employment in a non-comparable job position, or
  3. employment in a comparable job position

Accepting or refusing to accept a position with the employer against who the employee has a legal claim is tricky from a legal perspective. Several judges have concluded that an employee can refuse an offer of alternative employment with the same employer where the work environment the employee would be returning to is hostile or would cause loss of dignity or embarrassment. Courts look at the entire context including the employee’s relationships with individuals at the former workplace, salary, and similar work conditions and responsibilities.

Employees who mitigate their damages by finding a new job position may find a job position that has a similar level of responsibilities and salary, or may only be able to find an inferior position. A recent Ontario case demonstrates when courts will refuse to deduct the earnings of a wrongfully dismissed employee during the reasonable notice period.

The Mackenzie Decision

In MacKenzie v. 1785863 Ontario Ltd., 2018 ONSC 3442, Mr. MacKenzie was terminated from his senior level position as a general manager at a printing company where he earned $65,000 annually. Mr. MacKenzie was 65 years old at the time of termination and had been working for the employer for about five years. The employer blamed Mr. MacKenzie for being unable to revive the business and terminated him without cause.

Within one month, Mr. MacKenzie began working as a consultant to his wife’s printing company, earning $2000 per month. After six months, he began working at a new position, earning $1500 per month, which is about 3.6 times less than the annual salary he was earning at the printing company.

After deciding that the appropriate length of notice for Mr. MacKenzie is nine months (equivalent to nearly $49,000), the court decided that the income Mr. MacKenzie earned after termination should not be deducted from the nine months’ notice period.

The Test: When is Income Deducted from Notice Pay?

In concluding that Mr. MacKenzie’s earnings were not to be deducted, the court cited Brake v PJ-M2R Restaurant Inc., 2017 ONCA 402.

In Brake, the court stated that a dismissed employee has a duty to make reasonable efforts to find a position comparable in salary to mitigate his or her damages. However, the employee can refuse employment that is not comparable in salary without breaching the duty to mitigate.

The court’s view is that where a wrongfully dismissed employee is forced to accept a position that is considerably inferior, the earnings from such a position are not classified as mitigation of damages. Accordingly, such earnings are not deducted from the amount the employee is entitled to from the former employer.

This decision is significant for employees because it recognizes that dismissed employees sometimes need to work at relatively menial jobs to pay the bills while they look for a comparable job.

If you have been recently terminated and are considering taking a lower paying job or a contract position, contact one of the lawyers at MacLeod Law Firm to learn how this job will impact your wrongful dismissal. You can contact us at [email protected] or 647-204-8107.

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