Legal News

Mitigation Principles Not Applicable to Contractual Severance Payment
July 9, 2009

A recent decision of the British Columbia Supreme Court has confirmed that an employee owed contractual severance is not required to mitigate his damages by seeking new employment.

The plaintiff was employed pursuant to an employment agreement with a term of three years. The agreement included a termination provision which provided for payment of twelve months’ salary upon termination without cause. When the employer suffered financial difficulties, the plaintiff was dismissed without notice or pay in lieu thereof. A Trustee was appointed and the plaintiff became an unsecured creditor, whose claim was in the amount of twelve months’ salary (roughly $143,000).

The plaintiff subsequently entered into a new employment agreement with the employer, in the same position, but for a reduced salary and shorter term. The Trustee then disallowed $110,305 of the plaintiff’s claim, on the basis that the employee had mitigated his loss by obtaining new employment. However, on review by the British Columbia Supreme Court, the plaintiff’s contractual right to the severance payment was found to be a debt payable upon termination. Accordingly, the usual mitigation principles, including the rule against avoided loss, did not apply. Thus, the Court found the plaintiff’s claim for the full twelve months’ salary was a valid and subsisting claim.

This decision serves as an important reminder to employers that severance provisions in employment contracts will not necessarily be subject to any duty to mitigate and may be payable in full, regardless of whether or not the ex-employee finds alternate employment.

Pacific Ballet British Columbia Society, 2009 BCSC 820