Contractual severance and duty to mitigate

by | Jun 25, 2012 | Blog, Employee Terminations, Severance

Contractual severance and duty to mitigate

by | Jun 25, 2012 | Blog, Employee Terminations, Severance | 0 comments

Employment contracts often contain termination clauses which stipulate the amount of notice or payment in lieu of notice that an employer will give to an employee in the event he/she is terminated without cause (the “Notice Clause“).

In Bowes v. Goss Power Products Ltd, a very recent decision of the Ontario Court of Appeal, the Court held that a terminated employee has no duty to mitigate where an employment contract contains a Notice Clause and the Notice Clause does not  expressly require mitigation.

Facts of the Case

Bowes was the Vice President of Sales and Marketing for Goss Power and worked for Goss Power for approximately 3.5 years when he was terminated without cause.  His contract of employment contained a six months Notice Clause that was silent about mitigation. When Goss Power terminated Bowes, the letter of termination that he was given, stated that he would be paid his salary for six months  i.e., as a salary continuance, and that he was required to look for alternative employment during this period. When Bowes found alternative employment (within approximately two weeks of being terminated), Goss Power paid him three weeks salary (which was the minimum amount of severance that he was entitled to under the Ontario Employment Standards Act) and stopped the balance of the salary payments. At trial, the judge held that Bowes had a duty to mitigate because the Notice Clause did not expressly state or imply that he was not required to mitigate his losses.

The Court of Appeal set aside the trial judge’s decisions and held that the six months notice was a “contractual right” to a specified amount and that, accordingly, Bowes had no duty to mitigate his loss. As a result, Goss Power was ordered to pay Bowes the amount that he should have received under the Notice Clause, notwithstanding the salary that he was earning from his new employer.

Tips for employers:

  • Think carefully about how much notice you wish to give an employee when terminating the employment relationship without cause. (Remember that the amount of notice that you give cannot, at any time, be less than the statutory minimum).
  • Once you decide on the amount of notice, decide whether you wish to give working notice, pay in lieu of notice or a combination of the two.
  • State the Notice Clause in the employment agreeement in clear, simple, language.
  • If you want the employee to mitigate his/her losses state this clearly in the Notice Clause.

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