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Employment - Mitigation

. Monterosso v. Metro Freightliner Hamilton Inc.

In Monterosso v. Metro Freightliner Hamilton Inc. (Ont CA, 2023) the Court of Appeal considers contractual mitigation, both in an employment and other contexts. Case law is cited for the proposition that an employment contract of fixed term does not attract a duty to mitigate:
[7] Next, the appellants submit that the trial judge erred in holding that the respondent was not required to mitigate his damages. We accept this submission.

[8] The trial judge erred by conflating the situation of independent contractors with that of employees working under fixed-term contracts. Although this court held in Howard v. Benson Group Inc., 2016 ONCA 256, 129 O.R. (3d) 677, leave to appeal refused, [2016] S.C.C.A. No. 240, that employees under fixed-term contracts are entitled to damages equal to the loss of remuneration for the balance of the fixed term, without a duty to mitigate, this court has never held that independent contractors do not have a duty to mitigate following breach of a fixed-term contract. Mohamed v. Information Systems Architects Inc., 2018 ONCA 428, 423 D.L.R. (4th) 174, at para. 26, expressly left open the question whether the Benson principle applies to fixed-term contracts of independent contractors. The Mohamed panel held only that there was no duty to mitigate in the specific circumstances of that case because the parties intended compensation for the fixed term to be the consequence for failing to terminate the contract in good faith – effectively, a liquidated damages agreement: Mohamed, at para. 29.

[9] A duty to mitigate arises when a contract is breached, including contracts with independent contractors. Of course, the terms of a contract may provide otherwise. However, nothing in this case takes it outside the normal circumstances in which mitigation is required. For example, the respondent was not in an exclusive, employee-like relationship with the appellants, nor was he dependent on the appellants; the terms of the contract permitted the respondent to perform services for other parties. The matter was not argued fully before us, but for purposes of this appeal it suffices to say there was no basis for the trial judge to conclude that the respondent was not required to mitigate.

[10] Although the trial judge made no findings on the mitigation issue, this court can determine the matter. The burden was on the appellants to establish that the respondent failed in his duty to mitigate and they did not meet that burden. The respondent filed extensive evidence detailing his unsuccessful job search efforts. The appellants acknowledge this evidence but assert that the respondent was looking for work that was beyond the scope of his experience and qualifications. There is no basis in the evidence on which to accept this assertion. The appellants led no evidence to establish that there were jobs the respondent could have taken. Thus, despite the trial judge’s error in failing to require mitigation, the result is the same, for the appellants have not met their burden of proving that the respondent failed to mitigate his damages.
. Lake v. La Presse

In Lake v. La Presse (Ont CA, 2022) the Court of Appeal allowed an appeal by a terminated employee of a wrongful dismissal action. In these quotes the court considers mitigation:
[10] I begin with a summary of the relevant legal principles respecting mitigation of damages for wrongful dismissal.

[11] The leading authority is Red Deer College v. Michaels, 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324. The duty to mitigate is based on the premise that the defendant is not responsible for losses that a plaintiff could reasonably have avoided. If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, “it is for the defendant to carry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial judge’s assessment of the plaintiff’s evidence on avoidable consequences”: at p. 331. The burden is on the defendant to show the plaintiff “either found, or, by the exercise of proper industry in the search, could have procured other employment of an approximately similar kind reasonably adapted to his abilities”: at p. 332. The burden is “by no means a light one, for this is a case where a party already in breach of contract demands positive action from one who is often innocent of blame”: at p. 332.

[12] While a terminated employee has a duty to take reasonable steps to mitigate, the onus is on the defendant to demonstrate that the plaintiff could reasonably have avoided a loss or that she acted unreasonably in failing to do so: Gryba v. Moneta Porcupine Mines Ltd. (2000), 2000 CanLII 16997 (ON CA), 5 C.C.E.L. (3d) 43 (Ont. C.A.), at para. 57. The defendant must prove: (1) that the plaintiff failed to take reasonable steps to mitigate her damages; and (2) that if she had done so she would have been expected to secure a comparable position reasonably adapted to her abilities: Link v. Venture Steel Inc., 2010 ONCA 144, 79 C.C.E.L. (3d) 201, at para. 73.

[13] The determination of whether a terminated employee took reasonable steps in mitigation, including whether the failure to mitigate caused any part of the loss, is largely a question of fact. Absent an error in principle or a palpable and overriding error, a decision respecting mitigation is entitled to deference: Humphrey v. Mene Inc., 2022 ONCA 531, at para. 53; McNevan v. AmeriCredit Corp., 2008 ONCA 846, 94 O.R. (3d) 458, at para. 67.


[19] The motion judge erred in principle when, at para. 65, she accepted that, in mitigation, after a reasonable period of attempting to find similar employment, a dismissed employee must begin searching for a lesser paying job (which was based on an obiter comment by a trial judge in Neilipovitz v. ICI Paints (Canada) Inc. (2002), 27 C.C.E.L. (3d) 256 (Ont. S.C.), at paras. 25-26), and then, at para. 68, she concluded that the appellant should have applied for a sales representative role if she continued to remain unemployed. The obligation of a terminated employee in mitigation is to seek “comparable employment”, which typically is employment that is comparable in status, hours and remuneration to the position held at the time of dismissal: Carter v. 1657593 Ontario Inc., 2015 ONCA 823, at para. 6. There was no obligation for the appellant, to seek out less remunerative work, including by working as a sales representative.


[26] The duty to “act reasonably” in seeking and accepting alternate employment is a “duty to take such steps as a reasonable person in the dismissed employee’s position would take in [her] own interests” and is “not an obligation owed by the dismissed employee to the former employer to act in the employer’s interests”: Forshaw v. Aluminex Extrusions Ltd. (1989), 1989 CanLII 234 (BC CA), 39 B.C.L.R. (2d) 140 (C.A.), at pp. 143-44.

[27] The onus was on the respondent to prove the appellant’s failure to mitigate. Typically, in asserting that a terminated employee has failed to mitigate, the employer will lead evidence on this point, although the burden can be discharged by reference to the plaintiff’s own evidence: Red Deer College, at p. 331. In this case, the respondent offered no evidence to counter the appellant’s evidence that the vice-president positions had similar job responsibilities to her previous employment, and that opportunities in the industry at the time were limited.

[28] In the absence of affirmative evidence from the respondent, or any suggestion in cross-examination that the appellant failed to apply for an available position that was comparable in nature to her former position, the record did not support the motion judge’s conclusion that the appellant failed to make reasonable efforts to mitigate her damages.

Issue Two: Did the motion judge err in her assessment of whether the appellant would have found comparable employment if she had taken reasonable steps to mitigate?

[29] The appellant asserts that, at the second stage of the test for mitigation, the motion judge made an inference that was not supported by the evidence. The motion judge engaged in speculation when, after concluding that the appellant had not taken reasonable steps to mitigate her damages, she stated:
In these circumstances, I infer that, had the [appellant] expanded the parameters of her job search, searched earlier, and applied for more positions, her chances of obtaining a position would have improved significantly. Although there is no direct evidence in front of me of other positions that the [appellant] could have applied for, I find it is reasonable to assume that they existed. If vice-president roles were available, more junior roles were also available. The [appellant] chose unreasonably to limit her job search, which had a corresponding impact on her ability to find work.
[30] The respondent contends that it was open to the motion judge to draw an inference to satisfy the second part of the test on mitigation, and that the motion judge did not in fact speculate, but made a reasonable inference based on the evidence before her.

[31] I would give effect to this ground of appeal.

[32] The second part of the test on mitigation requires that the court be satisfied that, if reasonable steps had been taken, the terminated employee would likely have found a comparable position within the reasonable notice period. As Ferguson J. observed in Rowe v. General Electric Canada Inc. (1994), 1994 CanLII 7389 (ON SC), 8 C.C.E.L. (2d) 95 (Ont. Gen. Div.), at para. 14, “the breach of the plaintiff’s duty to mitigate will only be relevant if the breach is proved to be causative [of the plaintiff’s loss]”. In that case, as here, there was no evidence to support the conclusion that the terminated employee would likely have found comparable employment if reasonable and appropriate steps in mitigation had been taken.

[33] I agree with the respondent that, in an appropriate case, an employer could meet the second branch of the mitigation test by means of a reasonable inference from proven facts. In Parks v. Vancouver International Airport Authority, 2005 BCSC 1883, for example, the court reduced the plaintiff’s notice period from seven to five months where the plaintiff delayed the start of his job search by three months and, although the defendant did not put forward evidence of available positions, the plaintiff had readily found a comparable position less than two months after starting his job search. In this case, however, there was no evidence to support the inference that, if she had applied for other positions, the appellant would have found comparable employment. That conclusion was simply not available on this record.

[34] In any event, the inference drawn by the motion judge did not go so far as to meet the second stage of the mitigation test. Rather, she inferred that the appellant’s chances of obtaining a position would have improved significantly, and she concluded that, if vice-president roles were available, more junior roles were also available. Even if her reference to “more junior roles” is understood to mean comparable employment, the inference made by the motion judge extends only to the conclusion that such positions were available. The motion judge did not ask or answer the proper question at the second stage: whether the respondent had proven that, if reasonable steps in mitigation had been taken by the appellant, she would have found a comparable position during the reasonable notice period.
. Howard v. Benson Group Inc. (The Benson Group Inc.)

In Howard v. Benson Group Inc. (The Benson Group Inc.) (Ont CA, 2020) the Court of Appeal held that mitigation did not apply to contractually fixed-term notices of termination:
The Duty to Mitigate

[32] The leading case from this court on the duty to mitigate in the context of an employment contract is Bowes. The question in Bowes was whether an employment agreement that fixes the period of notice, but makes no specific reference to mitigation, attracts the obligation to mitigate in the event of breach in the same way as the obligation to mitigate attaches to the common law duty to provide reasonable notice or pay in lieu.

[33] Bowes held that a contractually fixed term of notice is distinguishable from common law reasonable notice. At para. 34, the Bowes court stated: “[a]n employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.” Thus, the duty to mitigate does not apply to liquidated damages or contractual amounts: Bowes, at para. 41.

[34] The rationale for this conclusion is that: (1) it would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages for termination, and then permit it to reduce that amount by compelling the employee to mitigate his or her damages when mitigation was not addressed in the employment agreement; and (2) it would be inconsistent for parties to contract for certainty, and yet leave mitigation as a live issue with its uncertainty and risk of future litigation: Bowes, at para. 61.

[35] The employment agreement in Bowes differed from the Employment Contract in this case in two respects: (1) it was not a fixed term contract; and (2), more significantly, it contained an express clause stipulating a fixed quantum of damages for early termination of the contract.

[36] The appellant argues that the Bowes principle ought to be extended to fixed term contracts that, in effect, do not contain a provision for early termination without cause. He argues that the same interests of fairness and certainty apply. He relies on Wakeling J.’s commentary on Bowes in Lovely, at para. 140:
Certainty is just as much a feature of a fixed-term contract with no early termination provision as a contract term requiring an employer to pay an employee a stipulated sum if it wishes to invoke an early termination provision in a fixed-term contract or a termination provision in an indefinite-duration agreement. An employer who ends the employment relationship in a fixed-term contract before its term expires must pay the employee the value of the salary and benefits the employee would have received had he or she worked throughout the remaining term of the contract. If the parties wish to modify that obligation they should unambiguously say so.
[37] The respondent’s objection to this reasoning is that, far from the circumstances of Bowes, the parties here had not bargained for certainty. The motion judge found that there was no evidence as to what the parties agreed should happen if Clause 8.1 was found to be unenforceable. It would be odd, on the respondent’s view, to characterize the result in this case as the consequence of parties bargaining for certainty as the absence of a specified termination payment was accidental.

[38] I would reject this argument. In my view, the parties did bargain for certainty when they entered a fixed term contract.

[39] There is no reason to depart from the rule in Bowes that there is no duty to mitigate where the contract specifies the penalty for early termination. It does not matter whether the penalty is specified expressly, as in Bowes, or is by default the wages and benefits for the unexpired term of the contract, as in the case of fixed term contracts generally.

[40] The respondent resists this conclusion, relying on Loyst v. Chatten’s Better Hearing Service, 2012 ONSC 1653, 98 C.C.E.L. (3d) 243, aff’d 2013 ONCA 781, 14 C.C.E.L. (4th) 151, and Graham v. Marleau, Lemire Securities Inc. (2000), 2000 CanLII 22616 (ON SC), 49 C.C.E.L. (2d) 289 (Ont. S.C.). In my opinion, neither of these cases help the respondent.

[41] In Loyst, the question was whether a refusal by an employee to accept unilaterally imposed changes to her employment contract constituted a failure to mitigate. The trial judge found that the employer had terminated the employment, and had not satisfied its onus of proving that the employee’s mitigation efforts were inadequate. On appeal, this court held, in a brief endorsement, that based on the trial judge’s finding that the employment had been terminated, the employer could not argue that the employee had failed to mitigate by not remaining with the employer. The termination of employment precluded the option of remaining with the employer.

[42] The trial decision in Loyst is easily explained on the basis that it predates Bowes. On appeal to this court in Loyst, neither Bowes nor the question of whether the duty to mitigate applied, were put in issue. On that basis, Loyst is of no assistance to the respondent.

[43] In Graham, Nordheimer J. exhaustively canvassed the case law on the question of whether a contractual sum payable on termination of employment is subject to the duty to mitigate. After observing that there were competing lines of authority, he concluded at para. 50 that the duty to mitigate applied to both fixed term contracts and contracts of indefinite duration. Graham, however, has been overtaken on this point by Bowes. At paras. 34-37, the Bowes court wrote:
An employment agreement that stipulates a fixed term of notice or payment in lieu should be treated as fixing liquidated damages or a contractual amount. It follows that, in such cases, there is no obligation on the employee to mitigate his or her damages.

To reiterate, the premise of Graham, set out at para. 53, was as follows:
[A contractually fixed term of notice] is nothing more than an agreement between the parties as to the length of the reasonable notice to terminate the contract. I see no reason why there should be any distinction drawn between contracts of employment where the notice period is not stipulated and those where it is with the result that there would be a duty to mitigate in the former but not in the latter. [Emphasis added.]
In my view, Nordheimer J. in Graham, and the application judge in this case, erred by treating a contractually fixed term of notice as effectively indistinguishable from common law reasonable notice.

When parties contract for a specified period of notice or pay in lieu they are choosing to opt out of the common law approach applied in Bardal. In doing so, the parties should not be taken as simply attempting to replicate common law reasonable notice. The Alberta Court of Appeal explained as follows in Brown v. Pronghorn Controls Ltd., 2011 ABCA 328 (CanLII), 515 A.R. 128, at para. 47:
If the contract entitles the employee to payment of money, howsoever calculated, on termination, that right to that money is contractual. As such, the parties were not bound to specify an entitlement that is equal or even analogous to the quantum of reasonable notice that the common law might require if the contract was silent.

Damages for contractually stipulated notice or pay in lieu should not be analogized directly to damages for common law reasonable notice. The parties have specifically contracted for something different; it is an error to simply equate the two.
[44] In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd. (1960), 1960 CanLII 294 (ON SC), 24 D.L.R. (2d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).


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Last modified: 15-06-23
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