Thursday, February 9, 2012

Bowes v. Goss Power Products Ltd. update

Last August, I posted about the decision in Bowes v. Goss Power Products Ltd., in which Mr. Bowes was terminated from his position as Vice-President.  Under the terms of his contract, he was entitled to 6 months' notice or pay in lieu thereof.  He found a new job with equivalent income 12 days after his termination.  Essentially, he was trying to enforce the contractual term requiring the employer to pay him the 6 months' notice anyways.

The Court said No, because he had mitigated his loss based on the loss of employment.

I noticed recently that an appeal is scheduled to be heard next month.  Should be interesting to see.

Bowes is definitely the underdog here.  He lost his job, suffered no loss, presumably already received a modest windfall in the form of his statutory minimum notice, so he's suing for damages he hasn't really incurred in any meaningful sense.  The body of employment law jurisprudence is against him.

But, on more basic principles of contract, I'm not so sure that he's actually wrong.

When I'm rooting for the employee here, it isn't because of a pro-employee bias.  I think of myself as being fairly balanced.  I fight vigourously for the interests of my clients, be they employee or employer, in specific files.  But outside of my files, I'm on the side of law which makes sense.

Wrongful Dismissal:  The Usual Case

Normally, at common law, an employer is entitled to dismiss an employee on reasonable notice.  Contractual language can define the reasonable notice period, or change the reasonable notice period, within limits.  Notionally, an employer is entitled to say to an employee:  "Your employment will end on date x, which is y months out."  Then the employee would keep working until date x, looking for a new job for afterwards.

In practice, this never happens.  Most employers send home a dismissed employee immediately, preferring instead to provide "pay in lieu of notice".

However, under the common law default, an employer is not contractually entitled to fire without notice notwithstanding a payment in lieu.  As much as we might tend to conflate reasonable notice, notional notice periods, and pay in lieu of notice, the actual default obligation is to provide actual notice.  The Court of Appeal made this clear recently in Love v. Acuity Investments.  When an employer fires without notice (and without just cause), this is a breach of contract, and pay in lieu is "an attempt at compensation for the breach."  Pay in lieu is, in essence, damages.

This is important to understand, because then we start to understand why the mitigation principle applies.

There are two very fundamental principles in damages for breach of contract.  The first is the compensation principle, that the non-breaching party should be put in the position it would have been in had the contract been honoured (i.e. had actual notice been provided), to whatever extent this can be achieved by the payment of money.

The second is the mitigation principle, that a loss which is avoidable cannot be recovered.  This principle essentially creates an obligation on a fired employee to seek new work.

These are principles of damages, not of contractual interpretation.  They presuppose that a party has been wronged and suffered damage as a result.

If I get fired on actual working notice which is reasonable, then the contract hasn't been breached.  These principles don't apply.  I keep working, and once the notice period runs its course we go our separate ways.  There's no obligation to look for a new job during working notice - though it's just good sense to do so.

If I get sent home, however, without notice, then my contract has been breached.  I'm entitled to continue to be paid as I would have been had notice been given (compensation principle), but that doesn't mean that I'm entitled to sit at home and watch soap operas for y months.  I need to get out there and take reasonable steps to find another job.  If I don't do so, then my entitlements get reduced accordingly.

If I actually find a new job, with new income, then my income through the new job gets deducted from my entitlements from my old employer, because that goes partway to putting me back into the position I would have been in but for the breach.  This is what we're talking about when we describe "mitigation income".

Put into this framework, Bowes clearly shouldn't recover much:  After all, he earned mitigation income sufficient to put him back into the position he would have been but for the breach...but wait...what breach?

How this Case is Different

Goss Power Products was entitled by the employment contract to dismiss on provision of pay in lieu of notice.  Therefore, by terminating him without actual notice, there was no breach of contract.

No breach of contract, no duty to mitigate.  No duty to mitigate, no need to account for mitigation earnings.

Essentially, the language in the contract appears to have been quite simple:  We can fire you without notice, and we'll pay you this much for it.  In fact, this type of contractual language is not uncommon.  Which is why there will be an impact if Bowes wins.

Bowes' position is almost elegant for its simplicity.  The contract says the employer should pay, so the employer should pay.

The Superior Court's response was quite complex, actually, finding that the contractual language was not intended to displace the obligation to mitigate that exists in the usual case, and therefore does not do so.  But that seems not to be quite right, either:  Obligation to mitigate what?  If one supposes that Bowes had not obtained new employment, and the pay continuance had continued through the notional notice period, there would have been no breach of any contract at all, such that an obligation to mitigate is triggered.  In other words, the contract on its face suggests that Bowes could have spent six months watching soap operas, and the employer couldn't say anything about it.

To sum up:  Unlike the usual case, in which the termination without notice is a breach of contract requiring the employee to mitigate his loss, Bowes' termination without notice was not a breach of contract, meaning that he suffered no loss thereby which he could be required to mitigate.

Indeed, in order to get to the Superior Court's conclusion, one would have to actually read mitigation into the contract as an obligation of Bowes' in his performance of the contract.  That is problematic:  In a contract drafted by the employer, and put to relatively unsophisticated employees for their signature, it is extremely undesirable to start reading in obligations based on arcane legal principles such as the duty to mitigate.

At the end of the day, I would argue that Bowes has a point:  If an employer wants a contract to include a right to provide pay in lieu of notice while still preserving the employee's duty to mitigate, it should expressly include that in the contract language.


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.

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