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Employment - Mitigation

. Howard v. Benson Group Inc. (The Benson Group Inc.)

In Howard v. Benson Group Inc. (The Benson Group Inc.) (Ont CA, 2020) the Court of Appeal held that mitigation did not apply to contractually fixed-term notices of termination:
The Duty to Mitigate

[32] The leading case from this court on the duty to mitigate in the context of an employment contract is Bowes. The question in Bowes was whether an employment agreement that fixes the period of notice, but makes no specific reference to mitigation, attracts the obligation to mitigate in the event of breach in the same way as the obligation to mitigate attaches to the common law duty to provide reasonable notice or pay in lieu.

[33] Bowes held that a contractually fixed term of notice is distinguishable from common law reasonable notice. At para. 34, the Bowes court stated: “[a]n employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.” Thus, the duty to mitigate does not apply to liquidated damages or contractual amounts: Bowes, at para. 41.

[34] The rationale for this conclusion is that: (1) it would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages for termination, and then permit it to reduce that amount by compelling the employee to mitigate his or her damages when mitigation was not addressed in the employment agreement; and (2) it would be inconsistent for parties to contract for certainty, and yet leave mitigation as a live issue with its uncertainty and risk of future litigation: Bowes, at para. 61.

[35] The employment agreement in Bowes differed from the Employment Contract in this case in two respects: (1) it was not a fixed term contract; and (2), more significantly, it contained an express clause stipulating a fixed quantum of damages for early termination of the contract.

[36] The appellant argues that the Bowes principle ought to be extended to fixed term contracts that, in effect, do not contain a provision for early termination without cause. He argues that the same interests of fairness and certainty apply. He relies on Wakeling J.’s commentary on Bowes in Lovely, at para. 140:
Certainty is just as much a feature of a fixed-term contract with no early termination provision as a contract term requiring an employer to pay an employee a stipulated sum if it wishes to invoke an early termination provision in a fixed-term contract or a termination provision in an indefinite-duration agreement. An employer who ends the employment relationship in a fixed-term contract before its term expires must pay the employee the value of the salary and benefits the employee would have received had he or she worked throughout the remaining term of the contract. If the parties wish to modify that obligation they should unambiguously say so.
[37] The respondent’s objection to this reasoning is that, far from the circumstances of Bowes, the parties here had not bargained for certainty. The motion judge found that there was no evidence as to what the parties agreed should happen if Clause 8.1 was found to be unenforceable. It would be odd, on the respondent’s view, to characterize the result in this case as the consequence of parties bargaining for certainty as the absence of a specified termination payment was accidental.

[38] I would reject this argument. In my view, the parties did bargain for certainty when they entered a fixed term contract.

[39] There is no reason to depart from the rule in Bowes that there is no duty to mitigate where the contract specifies the penalty for early termination. It does not matter whether the penalty is specified expressly, as in Bowes, or is by default the wages and benefits for the unexpired term of the contract, as in the case of fixed term contracts generally.

[40] The respondent resists this conclusion, relying on Loyst v. Chatten’s Better Hearing Service, 2012 ONSC 1653, 98 C.C.E.L. (3d) 243, aff’d 2013 ONCA 781, 14 C.C.E.L. (4th) 151, and Graham v. Marleau, Lemire Securities Inc. (2000), 2000 CanLII 22616 (ON SC), 49 C.C.E.L. (2d) 289 (Ont. S.C.). In my opinion, neither of these cases help the respondent.

[41] In Loyst, the question was whether a refusal by an employee to accept unilaterally imposed changes to her employment contract constituted a failure to mitigate. The trial judge found that the employer had terminated the employment, and had not satisfied its onus of proving that the employee’s mitigation efforts were inadequate. On appeal, this court held, in a brief endorsement, that based on the trial judge’s finding that the employment had been terminated, the employer could not argue that the employee had failed to mitigate by not remaining with the employer. The termination of employment precluded the option of remaining with the employer.

[42] The trial decision in Loyst is easily explained on the basis that it predates Bowes. On appeal to this court in Loyst, neither Bowes nor the question of whether the duty to mitigate applied, were put in issue. On that basis, Loyst is of no assistance to the respondent.

[43] In Graham, Nordheimer J. exhaustively canvassed the case law on the question of whether a contractual sum payable on termination of employment is subject to the duty to mitigate. After observing that there were competing lines of authority, he concluded at para. 50 that the duty to mitigate applied to both fixed term contracts and contracts of indefinite duration. Graham, however, has been overtaken on this point by Bowes. At paras. 34-37, the Bowes court wrote:
An employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.

To reiterate, the premise of Graham, set out at para. 53, was as follows:
[A contractually fixed term of notice] is nothing more than an agreement between the parties as to the length of the reasonable notice to terminate the contract. I see no reason why there should be any distinction drawn between contracts of employment where the notice period is not stipulated and those where it is with the result that there would be a duty to mitigate in the former but not in the latter. [Emphasis added.]
In my view, Nordheimer J. in Graham, and the application judge in this case, erred by treating a contractually fixed term of notice as effectively indistinguishable from common law reasonable notice.

When parties contract for a specified period of notice or pay in lieu they are choosing to opt out of the common law approach applied in Bardal. In doing so, the parties should not be taken as simply attempting to replicate common law reasonable notice. The Alberta Court of Appeal explained as follows in Brown v. Pronghorn Controls Ltd., 2011 ABCA 328 (CanLII), 515 A.R. 128, at para. 47:
If the contract entitles the employee to payment of money, howsoever calculated, on termination, that right to that money is contractual. As such, the parties were not bound to specify an entitlement that is equal or even analogous to the quantum of reasonable notice that the common law might require if the contract was silent.

Damages for contractually stipulated notice or pay in lieu should not be analogized directly to damages for common law reasonable notice. The parties have specifically contracted for something different; it is an error to simply equate the two.
[44] In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd. (1960), 1960 CanLII 294 (ON SC), 24 D.L.R. (2d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).


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