Last fall, we reported on the mysteries of mitigation. Those articles (“When do employees have a duty to mitigate termination claim?” and “More mysteries of mitigation”) reported on the Ontario Court of Appeal’s decision in Bowes v. Goss Power Products Ltd. that confirmed that the duty to mitigate doesn’t necessarily apply where employment contracts contain specific termination payments and the employment relationship is terminated without cause.
The Quebec Court of Appeal has recently come to the same conclusion, in Walker v. Norcan Aluminium Inc., 2012 QCCA 2042. This decision extends the principle to another Canadian province.
In this case, Walker acted as an independent representative for Norcan Aluminium Inc. (Norcan). As part of its new business strategy, Norcan decided to hire Walker as head of the Ontario sales team. Following intense negotiations, the parties signed a three-year employment contract in October 2007 that included an annual base salary plus an annual sales bonus.
Despite the fixed term of the contract, a clause allowed Norcan to terminate it at any time before the end of the term with cause and without compensation. The contract also allowed Norcan to terminate it without cause by paying three months of base salary and 50 percent of his base salary for the amount of time left in the contract.
Several months later, Norcan terminated Walker’s employment but offered to let him continue as an independent representative. Walker refused and sued Norcan, claiming $155,000 pursuant to the contractual termination clause.
Superior Court decision
Norcan alleged that Walker’s failure to meet the sales targets amounted to a breach of the relationship of trust and constituted a serious reason for terminating the contract and it therefore didn’t owe him any damages. Furthermore, by refusing the offer to return to his former status, Walker failed to fulfil his obligation to reduce his damages.
The Superior Court disagreed. It concluded that failure to meet sales targets related only to Walker’s entitlement to a bonus and couldn’t provide a basis to terminate for cause.
With respect to the termination monies, the court said Walker had an obligation to mitigate his damages. Although Walker was under no obligation to accept Norcan’s offer, monies earned from the other job he obtained should be deducted from his termination entitlement. That left a difference of only $4,522.
Court of Appeal decision
The Court of Appeal confirmed the Superior Court’s conclusions on the cause issue. However, it came to a different decision on the mitigation issue.
For the Court of Appeal, the termination provision in question was a liquidated damages clause for the employee’s benefit. As such, in Quebec law it was a penal clause fixing the damages in advance. Article 1623 of the Civil Code of Quebec provides that an employee can avail himself of such a clause without having to prove the injury he has suffered. In other words, the obligation to mitigate damages doesn’t apply in such a case.
The Court of Appeal therefore granted Walker the full amount provided for in the contract – $153,278.
Lesson for employers
The general principle involving employment termination across Canada is that an employee has a duty to mitigate his damages. As a result, the employment income an employee earns following a dismissal is normally deducted from the damages he may be awarded in court. But not necessarily where the termination entitlement has been set in an employment agreement.
At least in Ontario and Quebec, employers must specifically state if termination monies pursuant to an employment agreement or offer letter are subject to mitigation. If employers don’t say so, they likely won’t be able to have the benefit of the employee’s mitigation.
Attorneys with Fasken Martineau, the authors of Northern Exposure – Employment Law for US Companies with Operations in Canada, invite you to a webcast on Thursday, February 21, 2013, 12:30 p.m.-2:30 p.m. EST. Members of the Canadian law firm will speak on the following topics:
- Workplace Privacy in the Aftermath of the Cole Decision (Dominique Monet, Montréal)
- Accommodating Mental Disabilities and Mood Disorders (Katherine M. Pollock, Toronto)
- Culpable, Non-Culpable and Hybrid Analysis – The Evolving Approach as to the Impact of Disability on Discipline (Lorene A. Novakowski, Vancouver)
Log-in instructions will be sent by e-mail a few days before the seminar. To register, click here.
For American participants: Upon request, Fasken Martineau will file necessary applications to have this seminar recognized by the American Bar Association.
Michel D. Bellemare practices labour and employment law, focusing on research and drafting. He advises private and public sector employers under provincial and federal regulation. Michel offers legal advice on all matters related to employment, including collective agreements, employment contracts, employment standards and severance pay. He also works on human rights files and injunctions.