Supreme Court of Canada Broadens Dismissed Employee’s Duty to Minimize Damages

By Rachel Ravary and Philippe Lacoursière
McCarthy Tetrault

Chalk one up for employers! In an era when the courts seem to be on a slippery slope of broadening employee rights, Canada’s highest court has given employers a break when it comes to assessing the costs of dismissing an employee without cause.

In its decision earlier this month in Evans v. Teamsters Local Union No. 31, the Supreme Court reaffirmed an employee’s duty to minimize or mitigate the losses resulting from an unjust dismissal. And, going one step further, the court ruled that an employee might even have to accept an offer to return to work for the dismissing employer or risk forfeiting his right to pay in lieu of notice of termination.

This decision may give Canadian employers more options for containing termination costs.

Facts
Donald Evans worked as a business agent for the Teamsters for over 23 years. In early 2003, he was dismissed after a new union executive was elected. Through his lawyer, Evans told the Teamsters, the employer in this case, that he considered 24 months’ notice of termination to be reasonable and would be prepared to accept 12 months of continued employment along with a lump sum payment equal to an additional 12 months of salary.

This proposal was rejected. Instead, the Teamsters asked him to return to work for the balance of his 24-month notice period. If he refused, his employment would be terminated immediately without further notice and he would be considered to have failed to mitigate his losses.

A long shot? Not according to the Supreme Court of Canada.

Courts weigh in
The trial judge found that Evans was indeed wrongfully dismissed. He was awarded $100,000 in damages. The trial decision was then overturned by the Yukon Court of Appeal, which agreed with the employer that Evans had failed to mitigate damages by not considering the offer put on the table by the Teamsters.

The Supreme Court of Canada upheld the appeal court decision. It agreed that in some circumstances it will be necessary for a dismissed employee to mitigate his or her damages by returning to or remaining at work for the same employer.

The Supreme Court’s reasons contain a number of interesting points that are useful for employers.

• First, the court confirmed that employers who give sufficient working notice of termination aren’t required to pay the employee above and beyond that notice.
• Second, the court reinforced the principle that damages in wrongful dismissal cases are meant to compensate for lack of notice and not to penalize the employer. Moreover, the employer’s obligation to pay damages in lieu of notice is subject to the employee making a reasonable effort to mitigate his losses by seeking an alternate source of income.
• Third – and this is the new one – the court held that provided that the employee won’t be subject to hostility, embarrassment, or humiliation, an employer can satisfy its notice obligation by making the employee an offer to return to work for the balance of the notice period. According to the court, it would be nonsensical to say that “working notice” is OK but that an offer to continue or resume employment as a means of reducing the damages claim is not.

Interestingly, the court adopted an objective test to determine whether reemployment is an appropriate option. The question is: Would a reasonable person consider the offer as a legitimate employment opportunity?

If the employee is offered a position at the same salary with similar benefits and status and if the personal relationships haven’t deteriorated to the point of hostility and no litigation has been brought, the offer would likely be considered a reasonable one.

Finally, the court made a point of noting that damages awarded because the employer acted in bad faith in the manner of dismissal (called “Wallace damages”) are never subject to mitigation. This is also new. This part of the ruling “ups the ante” for employers who act in bad faith.

Lessons for employers
This decision is important for employers because it confirms the employee’s duty to mitigate and gives employers more flexibility when it comes to working notices. Just remember that you still have to be careful since dismissed employees won’t necessarily be forced to return to work with their ex-employers, especially when the situation has deteriorated as a result of the dismissal.

Each situation will be evaluated on a case-by-case basis, keeping in mind the guidelines set out by the Supreme Court of Canada.