Tuesday, December 16, 2014

Wrongful Dismissal Awards - During the Notice Period

Wrongful dismissal 101:  In general, a dismissed employee is entitled to 'notice' of dismissal, and entitled to be put into the position he or she would have occupied had actual notice been given.  In practice, this means pay in lieu of notice, among other things, but is subject to a duty to mitigate - i.e. an obligation upon the dismissed employee to take reasonable steps to obtain replacement employment, which income reduces his/her entitlement to damages.

Here's the trick:  The entitlement to damages accrues upon breach of contract - i.e. upon termination without adequate notice - whereas mitigation occurs in real time.  For longer notice periods, this sometimes has the result that a matter can be adjudicated before the full notice period has run its course:  Suppose I'm entitled to two years' pay in lieu of notice, and I get to a summary judgment motion 12 months into the notice period.  How can I be awarded two years' pay in lieu of notice, when I still have an obligation to mitigate for another 12 months, which could have a substantial impact on my entitlements?

The truth is that this phenomenon is not particularly unique to employment law:  In the field of personal injury litigation, a plaintiff will often seek damages based on a perpetual limitation on earning capacity.  My understanding - though I could stand to be corrected by a PI lawyer - is that this is often resolved by an arbitrary 'discount' to account for the possibility that the plaintiff will earn more than expected at the time of trial.

I've seen that argued in wrongful dismissal contexts.  I've never seen it succeed in Ontario, but that's at least partly because there often isn't a great deal of time left in notice periods at the time of adjudication.  If there are just a couple of months left, a discount seems relatively unnecessary.

This issue arose in the recent case of Donath v. Hughes Containers Ltd..  Ms. Donath was dismissed after 14 years of service as a payroll administrator, at age 64.  The matter was brought to trial 10 months after the dismissal, and she was awarded 12 months' pay in lieu of notice.  (She sought substantially more, and it does seem to me that 12 months is a little on the low-end, given the Bardal factors here.)

So Justice Pollok turned to the question of how to address the not-yet-elapsed portion of the notice period.

The employer argued that an award of pay in lieu of notice was premature, and that the issue of damages should be adjourned and brought back on after the end of the notice period.  After all, she's obligated to mitigate her losses, and awarding the full amount now would effectively relieve her from that obligation.

The plaintiff, by contrast, argued that it was open to the court to find as fact that she would not obtain replacement employment in the remaining two months of the notice period.

Justice Pollak rejected both arguments.  The prospects of re-employment were low, but the evidence didn't establish that re-employment was "not possible", and therefore the employee's pitch couldn't succeed on the evidence.  (Justice Pollak seemed a bit critical of the plaintiff moving so quickly to trial, knowing that she was seeking substantially more notice.)  However, the defendant's argument was regarded as being improper - the trial was complete, and it simply wasn't available to adjourn the issue to a later date.

Instead, Justice Pollak elected to do something similar to Bernier v. Nygard:  In that case, the court awarded the full amount, but impressed the award of damages with a trust - in essence, if the plaintiff earned mitigation earnings, they would be held in trust for the defendant.  In this case, Justice Pollak imposed a continuing obligation to account for mitigation earnings, by ordering judgment be paid at the end of the notice period, less any mitigation earnings.  (Actually, the wording of the endorsement kind of suggests that Justice Pollak may be imposing an ongoing duty to take reasonable steps to mitigate...which is not necessarily an unreasonable order, but has significant practical difficulties.)


I like the result in Bernier v. Nygard.  In the right case, 'impressing the award with a trust' is the right solution, and Bernier was the right case for it.  Donath...probably not so much.  Asking the plaintiff to establish that re-employment during the reasonable notice period is 'impossible' is too high a standard - if the prospects of imminent re-employment are low, and we're down to the last two months of the notice period, then find as fact, on a balance of probabilities, that the plaintiff won't obtain replacement employment.

If we're talking about another 6-12 months, that's more difficult to do, and going down the road from Bernier - in the appropriate circumstance - can make more sense.  It's a compromise solution - effectively relieving the employee of the obligation to seek new employment, while holding the employee to the obligation to account for mitigation earnings.  Even then, it's imprecise, though, because 'mitigation earnings' aren't necessarily something you can nail down simply.

But what highlights that Justice Pollak appears to have been coming at this issue from the wrong angle is the treatment of interest:  It started to accrue only at the end of the notice period.  This is consistent with her treatment of the employer's obligations as only vesting after mitigation efforts are unsuccessful...

...and is straightforwardly incorrect on the law.  Interest can be a tricky issue.  It's often argued to start accruing at the date of breach, or sometimes halfway through the reasonable notice period.  But there's simply no basis for starting it accruing at the end of the reasonable notice period.

It's a minor issue, but it couples with her chastising the plaintiff for bringing the matter to trial so quickly, to really highlight the onus she's placing on the plaintiff to prove damages, as including proving that mitigation was or would be unsuccessful.

It dovetails in some ways with the error that I argued marred Justice Wilton-Siegel's decision in Garcia v. 1162540:  The Supreme Court jurisprudence is quite clear that wrongful dismissal damages flow from the breach of contract itself - that is, the employer's failure to continue employing (and paying) the employee through the notice period - and mitigation is a separate and subsequent analysis, with a different burden of proof.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

No comments:

Post a Comment