Contractual Notice does not supplant mitigation principle

Bowes v. Goss Power Products Ltd., a recent case from the Ontario Superior Court of Justice, involved an employee in a common situation making a "Hail Mary" play.

Bowes was a Vice-President making a base salary of $140,000 plus bonus and benefits. His employment was terminated, without cause, in April 2011 after about 3.5 years of service, and the language in his contract entitled him to six months' notice or pay in lieu thereof. So, when he was terminated, he was told that his salary would be continued for six months, but he was obligated to seek replacement employment and keep the employer apprised of his progress.

And he found a new job, with equivalent salary, 12 days later.

In contracts, the "mitigation principle" holds that a plaintiff cannot recover for a loss which is avoidable or avoided. So, when an employer terminates employment without notice, and the employee finds a new equivalent job shortly thereafter, most of the actual loss is avoided, and the employer's liabilities are quite limited.

It's well-established law in Ontario that the statutory minimum notice under the ESA is not subject to mitigation, but contractual/common law notice is.

So, for Bowes, getting the new job is a double-edged sword. He has his new job, and a stable source of income...but he doesn't get much more money from his old employer. An employee dismissed without cause usually wants that vindication. And the extra money would be nice, too. So Bowes initiated this Application to interpret the contract, to argue that his actual mitigation doesn't reduce his entitlement.

Some contractual language does have the "golden parachute" effect of not being subject to mitigation. This case doesn't have that kind of language. Yet I understand the argument: The mitigation principle is triggered by breach of contract. In the ordinary course, the employer isn't actually entitled to terminate on pay in lieu of notice (see, for example, Love v. Acuity Investments); pay in lieu of notice is the way of calculating damages caused by the breach of contract which is termination without notice. So I've been fired without notice, I lose my income, and I have a cause of action against my employer, but I have to try to mitigate.

When the contractual language, however, provides for termination with pay in lieu of notice, then there has been no breach of contract when the employer terminates with salary continuance. There has been no cause of action, no breach of contract, and no duty to mitigate accrues. So when the employer has elected to terminate with pay in lieu of notice, the employee should be entitled to pay through the whole notice period, regardless of whether or not a new job is obtained, correct?

The challenge is that this 'notice or pay in lieu thereof' language is used in many employment contracts, and the purpose is simply to supplant 'reasonable notice' and provide more certainty as to the notice period. While there's a certain technical logic to my above analysis, and ordinarily employers are held to a very high technical threshold, in this circumstance the policy considerations cut the other way: Bowes, with his new job, isn't in a morally persuasive position arguing that he should be getting his old salary in addition to his new one. The Court held that the intention of the contract was not to supplant the mitigation analysis.

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