Dollar for Dollar no Longer? Ontario Court Holds Employment Income Earned During Reasonable Notice Period not Deductible from Damage Award 2019-08-30T14:22:45+00:00

The historical position on mitigation income is that any employment income earned by a dismissed employee during the notice period will be deducted from their wrongful dismissal damages, regardless of the nature of the position. This “dollar for dollar” deduction is based on the principle of making the employee “whole” following an employer’s breach of the employment contract. There are several exceptions to this general rule: (1) employment income earned during the statutory entitlement period is not deductible from a damages award, (2) if an employee earned supplemental income from another job while he or she worked with the employer, income from the second job may not be deducted from damages, and (c) income earned from a vastly inferior position that the employee took because there is no comparable position available may not be deductible. The last exception is relatively new and at the forefront of discussion as it directly conflicts with the fundamental principle of making the employee whole.

In the Ontario Court of Appeal’s 2017 decision in Brake v. PJ-M2R Restaurant Inc. (see our newsletter coverage of this case), the court did not deduct the $600 earned by Ms. Brake at Home Depot during the reasonable notice period. The Court reasoned that because an employee is entitled to turn down a position that is not comparable in either salary or responsibility, it follows that income earned from a much inferior position which an employee is effectively forced to accept is not mitigation income and need not be deducted. It was unclear going forward whether Brake would be narrowly interpreted and distinguished on the meagre $600 sum in question or whether Justice Feldman’s reasoning would apply more broadly, and if so, what “a much inferior position” entails.

This issue arose again recently in the case of Mackenzie v. 1785863 Ontario Ltd. In Mackenzie, Mr. Mackenzie was dismissed from his role earning $65,000 as general manager of a printing company located in the Dryden area after five years of employment. He was 65 years of age at the time. During his notice period, Mr. Mackenzie first worked as a consultant for his wife’s printing company earning $2,000 a month. He then moved to a promotions job earning $1,500 a month, which he held at the time of the hearing. Relying on the reasoning above in Brake, the Superior Court of Ontario held that Mr. Mackenzie’s two positions were inferior in responsibility and salary compared to his prior role with the printing company and therefore the income earned from those jobs were not deductible from his damages.

This case may be distinguished on the basis that Mr. Mackenzie was forced to take those positions because of the lack of a job market in the Dryden area. However, the court’s unwillingness to deduct what one would have previously considered deductible under the historical dollar for dollar rule seems to suggest the broad implications of Brake and that the term “inferior” may be given a more generous view by the courts than one would have thought.

The Takeaway

Whether it be classified as supplemental income or income from a vastly inferior position, the courts appear to be moving away from a strict dollar for dollar approach to the deductibility of mitigation income. Given the uncertainty in the law, when adding a claw back provision into a termination settlement, it is critical for employers to stipulate the type of employment income that will trigger the claw back provision. Some ways to do this are by specifying the type of income (i.e. any employment income regardless of the industry or whether it is part-time or full-time) and amount of income (i.e. 50% of the dismissed employee’s previous salary) that will trigger the claw back.

The lawyers at Robinson Heeney would be happy to help with any of your drafting needs.