2 in 1 Creates Confusion: What is considered Mitigation Income?
In employment law, a duty to mitigate requires a terminated employee to make reasonable efforts to limit the loss. This generalized statement is not as straightforward as possibly imagined. The following discussion of the Ontario Court of Appeal’s Decision in Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402 sheds light on when income will not be deducted from what an employee is entitled to during the reasonable notice period
The respondent, Esther Brake (“Brake”) worked at various McDonald’s restaurants for a total of more than 25 years. For the majority of Brake’s employment for McDonalds, the appellant, PJ-M2R Restaurant Inc. (“PJ-M2R”), employed her on a full-time basis. PJ-M2R is a McDonald’s franchise holding company that owns several McDonald’s restaurants.
Brake was working as a restaurant manager for PJ-M2R for a number of years. However, on August 2, 2012, Brake was told that she had to accept a demotion to first assistant or she would be terminated. Brake did not take the new position and as such, her employment was then terminated. At that time of her termination Brake was 62.
Brake brought an action against PJ-M2R for wrongful dismissal.
Between the date of Brake’s termination and the time of the trial, Brake made the following efforts to mitigate. During Brake’s tenure with PJ-M2R she also worked for Sobey’s as a cashier. PJ-M2R was aware of Brake’s other employment. After her termination, Brake increased her hours at Sobey’s. Brake made several other efforts to mitigate, including from October 2012 until mid-January 2013, she worked 30-36 hours per week at Tim Horton’s. Brake also attempted to start a babysitting service and cleaning service. However, after realizing that the babysitting and cleaning services could not sufficiently support her, Brake applied for several positions. Brake was not offered a management position with any company since her termination. As such, in March 2013, Brake accepted a position as a cashier at Home Depot. She works approximately 35-38 hours per week and continued to work there to date of the trial judge’s decision.
The trial judge held that as of the date of her termination, Brake had the equivalent of 20 years of employment with PJ-M2R. The trial judge also found that Brake had been wrongfully dismissed and that an appropriate notice period was 20 months, inclusive of statutory severance as required by the Employment Standards Act (“Act”). The trial judge did not, however, specify what the statutory severance period was.
PJ-M2R brought an appeal.
While PJ-M2R raised several issues on appeal, the relevant issue with respect to this discussion is whether the trial judge erred in failing to deduct income the employee received during the notice period from the damages award.
Ontario Court of Appeal’s Decision
The court first described the well-established principle of damages an employee may be entitled to if they have been dismissed without reasonable notice. The court stated that “[a]n employee is entitled to damages for breach of contract based on the employment income the employee would have earned during the reasonable notice period, less any amounts received in mitigation of loss during the notice period: Sylvester v. British Columbia, 1997 CanLII 353 (SCC),  2 S.C.R. 315, at paras. 14-17.” (para 96)
However, beyond the generalized statement the court stated that they would not reduce the damages award Brake was entitled to during the notice period because, in the court’s view, the amounts earned by Brake during the notice period were not amounts received in mitigation of loss (emphasis added). However, the reasoning of the court’s conclusion differs from the trial judge’s reasoning. The trial judge’s approach does not reconcile with the principle that employment income earned during the notice period is generally to be treated as mitigation of loss.
To explain why, the court considered more closely the following issues:
a. the Employment Income (“EI”) benefits received by Brake;
b. Brake’s employment income in the statutory entitlement period under the Act; and
c. Ms. Brake’s employment income in the balance of the 20-month reasonable notice period (the “Balance of the Notice Period”).
The court held that the law with respect to EI benefits is clear: EI benefits are not to be deducted from damages awarded for wrongful dismissal.
Employment Income in the Statutory Entitlement Period is not subject to Mitigation
First, the court stated that when Brake’s employment was wrongfully terminated, she was entitled to two types of compensation: termination and severance pay under the Act (“statutory entitlements”) and common law damages for wrongful dismissal.
The trial judge made a global award encompassing Brake’s statutory entitlements and her common law damages. Therefore, the damages award of 20 months was not solely compensation at common law for wrongful dismissal, rather it includes Brake’s statutory entitlements. However, statutory entitlements are not damages. Meaning, Brake was entitled to receive her statutory entitlements even if she secured a new full-time job immediately after her termination with PJ-M2R. Accordingly, the income that Brake earned during her statutory entitlement period is not subject to deduction as mitigation income. The court further explained that statutory entitlements are not linked, as damages are, to the criteria established in Bardal such as the age of the employee, rather, they are payable in any event.
The court noted that the trial judge ought to have determined the length of Brake’s statutory entitlement period and identified which items of employment income were attributable to that period and which were attributable to the Balance of the Notice Period.
The court determined that Brake’s statutory entitlement period would clearly cover the period from the date of her dismissal to the end of 2012 and some part of 2013. However, the court was limited in certainty of the end of the statutory period because the record does not permit the precise number of weeks to which she was statutorily entitled. Consequently, the court could not determine when in 2013 the statutory entitlement period expired.
The court took the view that where a blended damages award is made, it is for the employer to prove what employment income is attributable to the statutory entitlement period and what employment income is attributable to the Balance of the Notice Period. Specifically, “once an employee has proven wrongful dismissal and has adduced evidence of his or her losses, the onus shifts to the employer to demonstrate that some or all of those losses were avoidable or avoided” (para 125)
As such, it was for PJ-M2R to show that Brake’s employment income received during the notice period treated as mitigation income was properly attributable to the Balance of the Notice Period.
On that basis, the court excluded three amounts of Brake’s income: (1) income from Sobey’s for the period August to December 2012 ($9,208.88); (2) a portion of the total Sobey’s income earned in 2013 ($19,566.48); and (3) income from Tim Horton’s for two unidentified months in 2013 ($2,701.00). The court noted that there was no finding by the trial judge as to when in 2013 Brake earned that income. As such and with that in mind PJ-M2R bore the onus to demonstrate what losses were avoided. The court was not prepared to assume that the Sobey’s and the Tim Horton’s income was earned outside of the statutory entitlement period. Accordingly, the court did not deduct it.
Employment Income in the Balance of the Notice Period
The notice period of 20 months set by the trial judge expired near the beginning of April 2014. As such, for the Balance of the Notice Period, Brake received: (1) that part of the 2013 Sobey’s income not attributable to the statutory entitlement period; (2) $6,793.20 from Sobey’s for the period from January to April of 2014; and (3) $600 from Home Depot.
The court found that it was open to the trial judge to make no deduction for the income that Brake earned during the Balance of the Notice Period. Specifically, the court stated that “if an employee has committed herself to full-time employment with one employer, but her employment contract permits for simultaneous employment with another employer, and the first employer terminates her without notice, any income from the second employer that she could have earned while continuing with the first is not deductible from her damages.” (para. 140) Therefore, the court did not deduct the income that she received from Sobey’s during the Balance of the Notice Period.
With respect to Brake’s Home Depot income, the court noted that the evidence was unclear. However, the court decided to refrain from deducting Brake’s Home Depot income because of the modest amount.
While the above decision appears to be out of line with general mitigation principles, it confirms that statutory entitlements to termination and severance pay are not subject to mitigation deductions. This is not the same as common-law notice. As such, if a terminated employee finds work immediately after termination, they are entitled to those amounts and any amount earned until the statutory termination / severance period is over. While the difference in statutory and common-law termination / severance seems inherent it has in effect created two distinct notice periods. It is important for employees, employers, counsel and the court to more readily recognize the different notice periods and the effect the distinction will have on the classification of mitigation income.
The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.