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Employment & Labour

Earnings in ‘inferior positions’ and employee severance

By Paul Willetts 

The Ontario Court of Appeal recently released this ruling. This is an important decision for employees and employers alike as it may potentially change the way in which Ontario courts assess a wrongfully dismissed employee’s mitigation efforts and their consequent entitlement to additional severance. Mitigation refers to the obligation of dismissed employees to look for alternate comparable employment. Feldman J.A.’s concurring reasons, in particular, suggest that where a dismissed employee accepts an inferior job, any earnings therein may not count as ‘mitigation income’.

The employee was a long-service restaurant manager, having worked for the company for over 25 years. Most recently, the employee had been employed by a franchise operating in the Ottawa area. She was fired for refusing to accept a significant demotion from the role of restaurant manager to first assistant, and was 62 years old at the time.  

While working for the restaurant, the employee also worked at Sobeys to supplement her income and continued to work at Sobeys following her dismissal. Post-dismissal, the employee attempted to start multiple businesses and worked for short periods of time in inferior, non-managerial positions. Despite looking, the employee was unable to find comparable full-time managerial work similar to that she held at the restaurant.

The defendant submitted that the employee failed to mitigate the loss of her employment by refusing to accept the demotion it had offered to her. The court rejected this argument and found that a reasonable person in the employee’s position would not have been expected to accept such a demotion. An employee is not obliged to accept a demotion and work in an environment of hostility, embarrassment or humiliation. Given that the demotion offered to the employee would be both embarrassing and humiliating, in particular, because she would be reporting to a person operating in her former role that she had trained, the court concluded that it was reasonable for the employee to reject the demotion.

Consequently, the trial judge awarded the employee 20 months pay in lieu of notice. In upholding the trial judge’s damages award, the Court of Appeal adopted the reasons from this case in finding that regardless of income received from other sources during the statutory notice period, an employee is entitled to receive all statutory minimum entitlements regardless of any mitigatory earnings.

At the Ontario Court of Appeal, Gillese J.A. also found that the income the employee earned from Sobeys was not deductible as mitigatory earnings from the reasonable notice period. The court determined that the employee’s employment at Sobeys and the restaurant were not mutually exclusive. As such, had she continued to be employed by the restaurant, the employee could have continued to supplement her income through part-time work at Sobeys. 

Where the Court of Appeal diverged from the trial decision was with respect to the deductibility of income earned by the employee from her employment in an inferior position as a cashier at Home Depot following termination. The trial judge concluded that: 

Her ability to find employment does not take away from the loss she suffered from being dismissed without cause. The cashier position she occupies now at Home Depot is so substantially inferior to the managerial position she held with the Defendant that the former does not diminish the loss of the latter.

Because of the substantially inferior nature of the employee’s position at Home Depot, the trial judge refused to deduct the employee’s earnings in this role as mitigation income. Gillese J.A. disagreed with the trial judge in this regard, finding, at paragraph 99, that “that approach does not accord with the principle that employment income earned during the notice period is generally to be treated as mitigation of loss.” 

In concurring reasons (though not on this point), Feldman J.A. offered a novel approach to the deductibility of income earned by employees in an ‘inferior position’ during the notice period. Specifically, Feldman J.A. found that while a wrongfully dismissed employee must make reasonable efforts to obtain comparable employment, if the employee can only secure a position that is not comparable in either salary or responsibility, the employee is entitled to turn it down without having the income potentially earned from that inferior position deducted as mitigation. In this regard, Feldman J.A. stated:

If the trial judge finds the new job is vastly inferior to the old one, such that the employee would not be in breach of the duty to mitigate if she turned it down, the earnings should not be deducted.

Had the employee been in a position financially to reject an inferior job, the amount she could have earned at the inferior job would not have been deducted from her damages award as mitigation earnings. However, the employee accepted the job out of financial necessity. In Feldman J.A.’s opinion, the income earned from the inferior position should not be deducted and it should be treated in the same manner as if the employee had been in a position financially to reject the inferior position. 

It is too early to assess whether the Ontario courts will adopt Feldman J.A.’s concurring reasons. As it currently stands, income earned after the end of the statutory entitlement period will be deducted in mitigation of damages. That said, the decision opens the door for a potential exclusion of income earned by employees in ‘inferior positions’ post-dismissal.

This decision serves as an important reminder to Ontario employees of their workplace rights. Employees are not required to accept a substantial demotion that would expose them to a hostile work environment or that would be objectively embarrassing or humiliating. It also underlines the obligation for all dismissed employees to look for alternate comparable employment, and track their efforts in this regard.

For Ontario employers, this case has a number of lessons. It confirms that employers must be careful to avoid fundamentally altering an employee’s role, or risk unwanted liability. It further demonstrates the stringent standard to which employers will be held in demonstrating that a former employee failed to mitigate. Finally, and from a practical standpoint, this case garnered negative media coverage in the Ottawa area. This possibility should inform any employer’s business strategy in responding to litigation.

*Thank you to Colin Marshall for his efforts in putting together this article*

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