A.
INTRODUCTION
Canac Kitchens Ltd. shut down its Canadian
manufacturing operations in Thornhill, Ontario on May 27,
2008 due to a major slow down in business. Canac paid many
of its employees the statutory termination and severance minimums
required under the Employment Standards Act, 2000 (the
“ESA”). Many wrongful dismissal lawsuits by these former Canac
employees ensued, claiming additional common law damages for
wrongful dismissal. Two of these recent decisions, Moldovanyi
v. Canac Kitchens Ltd., [2009] O.J. No. 771 (Ont. S.C.J)
(“Moldovanyi”) and Zaman v. Canac Kitchens Ltd.,
[2009] O.J. No. 872 (Ont. S.C.J.) (“Zaman”), both
rendered by the Honourable Mr. Justice D.M. Brown in February
and March of 2009, raise important issues concerning the extent
of an employee’s duty to mitigate, or reduce, damages for
wrongful dismissal. The purpose of this Charity Law Bulletin
is to review these principles and to provide some guidance
to the employers and employees for charities and non-profit
organizations faced with this situation.
B.
THE DUTY TO MITIGATE WRONGFUL DISMISSAL DAMAGES
In an earlier Charity Law Bulletin
(No. 153) entitled “The Ins and Outs of Wrongful Dismissal
for Charities and Non-Profits”, the statutory and common law
entitlements for employees who have been wrongfully dismissed
from their employment were analyzed. In that Bulletin, it
was noted that the relationship between the employer and the
employee was contractual in nature and that an implied term
in most employment contracts is that the employer may not
dismiss an employee without providing reasonable notice or
pay in lieu of that notice.
As with most other forms of contracts,
the innocent party whose contract has been breached is required
to mitigate, or reduce, his or her monetary damages to the
extent reasonably possible. In the case of wrongful dismissal
claims, if a wrongfully dismissed employee does not take reasonable
steps to mitigate his or her damages, the court may reduce
the amount otherwise owing to that employee based upon an
estimate of the amount the employee could or should have reasonably
earned during the common law notice period.
By way of an example, assume that an employee
was wrongfully dismissed and there was a finding that the
employee should be entitled to a damages judgment representing
one year of pay in lieu of notice. However, there is also
evidence that the employee did not undertake a search for
comparable employment during that one year reasonable notice
period and remained unemployed for that entire time. In that
instance, it is possible that the court could reduce the damage
award by several months if the court is of the view that the
employee could have found employment within the reasonable
period if he or she attempted to do so. Thus, the failure
by the employee to attempt to mitigate his or her damages
can result in a substantial reduction of the employee’s wrongful
dismissal award.
C.
THE ISSUES IN THE
MOLDOVANYI AND ZAMAN DECISIONS
In both the Moldovanyi and Zaman
decisions, Justice Brown was faced with having to make a determination
as to whether either of the wrongfully dismissed employees
should have had their damages claims reduced as a result of
an alleged failure to mitigate.
1.
Moldovanyi v. Canac Kitchens Ltd.
In Moldovanyi, the plaintiff was
a forty–year-old man whose last job at Canac was a service
order layout technician. At the time of his termination, he
earned an annual salary of $44,686.20, together with participation
in the health benefits package, and had been employed by Canac
for nineteen years. At dismissal, Canac paid Mr. Moldovanyi
ESA termination and severance pay totalling thirty two weeks,
or eight months. Mr. Moldovanyi submitted that he was entitled
to a further eight months notice, for a total of sixteen months,
together with benefits. The court held that the reasonable
notice in this case should be fourteen months. In the result,
Mr. Moldovanyi was owed a further six months of pay in lieu
of notice.
During that fourteen month common law
notice period, Mr. Moldovanyi found some employment from a
part-time job he was able to secure at Ikea. Canac argued
that whatever he earned from his part-time employment at Ikea
during the eight month ESA period should be deducted from
those ESA payments. If this argument was accepted, the result
would have been a lesser amount owing by Canac.
The court rejected Canac’s position, relying
upon a decision of the Ontario Divisional Court in Boland
v. APV Canada Inc. (2005), 250 D.L.R. (4th)
376 (Ont. Div. Ct.), where the court decided that the ESA
entitlements cannot be reduced by amounts received by other
employment. In rendering his decision, Justice Brown refused
to follow a conflicting decision in Yanez v. Canac, [2004]
O.J. No. 5238 (Ont. S.C.J.).
However, as the case was heard by way
of motion for summary judgement prior to the expiration of
what the court determined to be the reasonable notice period,
the court was required to grant a judgement in such a way
that the plaintiff would be required to account for monies
earned through employment after the eight month time period
covered by the ESA entitlements, but prior to the expiration
of the fourteen month common law notice period. Otherwise,
by having the court deal with a claim at a relatively early
stage, there was a risk that the employee would receive more
than his common law entitlements by not having to account
for any monies earned during the common law notice period.
To address this issue, the court adopted
the approach used by Justice Chadwick in Brouillard v.
Rostrust Investments Inc., [1997] O.J. No. 4136 (Gen.
Div.). To ensure no excess recovery by the plaintiff, Justice
Brown ordered as follows at para. 27 of decision:
i)
Canac shall pay to its counsel, in trust, the balance
of the monies owing for the notice period;
ii)
Canac’s counsel shall invest those monies in a separate
interest-bearing trust account, and all interest will accrue
for the benefit of Mr. Moldovanyi;
iii)
Canac’s counsel shall pay to Mr. Moldovanyi equal monthly
instalments on the last day of each month;
iv)
At least one business day before the end of each month,
plaintiff’s counsel shall send a statement to Canac’s counsel
indicating what income, if any, Mr. Moldovanyi has earned
during that month. Copies of any pay stubs shall accompany
the statement; and
v)
If income has been earned, the amount will be deducted
from the amounts held in trust, and returned to Canac.
The clarification by Justice Brown in Moldovanyi
as to the inability of employers to deduct wages earned by
their dismissed employees from ESA entitlements is important,
and provides further certainty to the law on this issue. However,
it is also important to note that wages earned during the
common law notice period are deductible from a wrongfully
dismissed employees pay in lieu of notice claim.
2.
Zaman v. Canac Kitchens Ltd.
In Zaman v. Canac Kitchens Ltd.,
the Plaintiff, Rasheed Zaman was an accounts payable clerk
at Canac Kitchens Ltd. He was thirty-nine years of age at
the time of dismissal and had worked for the company for sixteen
years. He was dismissed without cause and was given working
notice of four weeks and statutory termination and severance
pay of twenty-five weeks, i.e. 7.25 months.
The Plaintiff brought a motion for summary
judgement. The court held that the applicable period of reasonable
notice was thirteen months. Therefore, he was entitled to
a further period of pay in lieu of notice representing a period
5.25 months in addition to the twenty-nine weeks, or 7.25
months, he had already been paid.
Canac took the position on the motion
that Mr. Zaman had failed to take reasonable steps to mitigate
his damages and, as a result, the court should reduce the
period of reasonable notice to which he would otherwise be
entitled by two months. In reviewing the law as to an employee’s
duty to mitigate damages, Justice Brown cited Echlin and Fantini,
Quitting for Good Reason: The Law of Constructive Dismissal
in Canada (Canada Law Book, 2001), at pp. 61-62:
In accordance with this general contract
law principle, any employee who is wrongfully dismissed has
an obligation to mitigate his or her damages. A failure to
do so will result in the court declining to award damages
or reducing the wrongful dismissal damages which would otherwise
have been payable to the employee. …Generally, the obligation
requires the dismissed employee to seek alternative employment
with another employer. The employee need not accept any position
available, but is entitled to limit his or her efforts to
employment of a comparable nature. Moreover, the onus in on
the employer to demonstrate that the employee failed to mitigate…A
return to school does not generally satisfy the duty to mitigate
unless the student remains available for work and is actively
pursing alternative employment. The critical factor, in all
cases of mitigation, is that the employee behaved reasonably
in attempting to mitigate his or her loss.
Justice Brown went on to state that the
burden of an employer to prove lack of mitigation is not easily
met. The employer must establish the employee failed to attempt
to take reasonable steps and that had his job search been
active, he would have been expected to have secured a comparable
position reasonably adapted to his abilities. Given the current
economic situation, this burden will be even more difficult
to meet.
In support of his mitigation efforts,
Mr. Zaman attached to his affidavit numerous job applications
he had made in writing and on-line since August 2008. He also
included a receipt for a fall 2008 Certified Financial Planner
course to upgrade his skills. The court held that while there
were some weaknesses in Mr. Zaman’s evidence, it was also
noted by the court that he was not cross-examined on his affidavit
and that Canac could not provide its own evidence that the
employee failed to take reasonable steps to mitigate his damages.
Therefore, Canac’s argument that Mr. Zaman failed to mitigate
his damages was rejected.
D.
CONCLUSION
An employee who
has been dismissed from his or her position needs to take
reasonable steps to search for alternative comparable employment.
For the employee, it is important to document these steps
and to keep copies of all applications and responses. Failure
to do so may result in a substantially decreased damage award
or may result in a reduced out of court settlement. Employers
should be aware of the duty to mitigate and offer to assist
the employee when circumstances permit. The employer may consider
providing a positive reference or offering out-placement services.
If litigation is likely, the employer may also wish to start
a file of job-openings that may suit the former employee for
future use in any lawsuit.
