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When will income (not) be deducted as “mitigation income”?
October 24, 2017
Author(s): Nicole Toye

It is well-established that an employee dismissed without reasonable notice is entitled to damages for breach of contract based on the income the employee would have earned during the reasonable notice period, less any amounts earned during that same period. A recent decision of the Ontario Court of Appeal, however, has determined that not all income earned during the notice period will be deducted as amounts received in mitigation.

The plaintiff, Esther Brake, worked at McDonalds for more than 25 years. She worked for PJ-M2R Restaurant Inc. (“PJ-M2R”), a company which owned several McDonald’s restaurants. In August 2012, Ms. Brake was working as a Restaurant Manager. She was told that she had to accept a demotion to First Assistant or would be fired. She declined the demotion and her employment was terminated. At the time of her dismissal, Ms. Brake was 62 years old.

Ms. Brake commenced an action for wrongful dismissal. PJ-M2R took the position that it had just cause for dismissal on account of performance issues. The trial judge found that Ms. Brake had been constructively dismissed and awarded 20 months’ reasonable notice, inclusive of statutory severance under the Ontario ESA. PJ-M2R appealed, on several grounds, including that the trial judge failed to properly account for the income Ms. Brake earned during the notice period.

All grounds of appeal were dismissed, but the court’s analysis of the mitigation issue is particularly noteworthy. In sum, the Court ruled as follows:

  • EI benefits are not deducted from damages awarded for wrongful dismissal;
  • Income earned during the statutory notice period is not subject to deduction as mitigation income. Employees are entitled to the statutory entitlements, irrespective of any mitigation;
  • Where the Court makes a global award, inclusive of statutory and common law notice, the onus is on the employer to prove what income was earned outside of the statutory notice period;
  • If a full-time employee also works part-time with another employer simultaneously, any income earned from the second employer during the notice period (that she could have earned while continuing to work at her full-time position) is not “mitigation income” and is not deductible from damages;

In a particularly striking concurring decision, Feldman J.A. also held that where a wrongfully dismissed employee is effectively forced to accept an inferior position, because no comparable position is available, the amount earned in that inferior position is not mitigation of damages and need not be deducted.

We will pay close attention to whether the courts in British Columbia and elsewhere start to implement this “inferior position” analysis in wrongful dismissal cases, as this reflects a significant change in the law of mitigation.

A copy of the decision is available online at Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402.

If you have any further questions regarding this decision please contact Nazeer Mitha or Nicole Toye.