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When Is Post-Termination Income Deducted from Damages for Wrongful Dismissal?
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When Is Post-Termination Income Deducted from Damages for Wrongful Dismissal?

By October 15, 2019 October 31st, 2019 No Comments

In Brake v. PJ-M2R Restaurant Inc., the Ontario Court of Appeal considered what type of income earned during the reasonable notice period should be deducted from damages for wrongful dismissal. After upholding the trial judge’s decision that the employee had been constructively dismissed, the Court in Brake confirmed that the trial judge was also correct in holding that the employee’s income during the reasonable notice period should not be deducted from the award for damages. The employee was awarded a twenty-month reasonable notice period after working for the employer for twenty years.

The employee was a 62-year-old long-serving manager of a McDonald’s restaurant. She received excellent performance reviews from 2000 to 2010, but received her first negative performance review in 2011. The employer responded to this negative review by assigning the employee to an “arbitrary and unfair” discipline program. The program included relocating the employee to a McDonald’s inside a Wal-Mart store that was notorious for under-performance and high employee turnover rates. After the employee was inevitably unable to meet the goals of the discipline program, she was offered a choice between a demotion from Manager to First Assistant or termination. The Court agreed with the trial judge that the action taken by the employer amounted to a substantial change to the essential terms of the employment contract. The employee was found to have been constructively dismissed.

The Court then looked at the employee’s duty to mitigate employment losses during the reasonable notice period. The Appellant argued that the employee’s failure to apply for restaurant management positions represented a failure to mitigate her employment losses. The Court resoundingly rejected this argument as she had made many attempts to obtain employment of a comparable level and was not required to apply only to her previous position for the sake of minimizing the compensation that her former employer owed her.

She did find another new source of income during the notice period. Generally, income earned during the reasonable notice period would have been deducted from any damages awarded to an employee. In Brake, the Court deviated from this general principle.

The employee began working as a cashier at Home Depot during the reasonable notice period. This was not considered to be an equivalent or comparable position to her manager position at McDonald’s. The Court determined that “where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.”

The Court in Brake has taken a somewhat new approach here to the question of mitigation. By considering not just whether or not the employee had found alternative employment, but also the nature of that employment and whether the employee was essentially forced to accept such employment, the Court has potentially altered the interpretation of what constitutes mitigation income.

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