Western Courts Clarify Effect of Mitigation in Fixed-Term Contracts

This blog was prepared with the assistance of Evan Morrow, summer law student.

When an employee is dismissed from a fixed-term contract and obtains alternate employment, how does this affect potential monies owing from the former employer?

Employers should beware that where improperly drafted or misunderstood, fixed-term contracts may expose employers to unanticipated liabilities.

Recent authorities from Ontario have held that a dismissed employee employed pursuant to a fixed-term contract does not have a duty to mitigate, such as to find alternative employment, during the unexpired term of the contract. However, these authorities are unclear as to whether or not actual mitigation, such as pay earned from the alternative employment, is deductible from damages in claims of wrongful dismissal. This has led to some confusion about the correct approach for assessing mitigation in respect of fixed-term contracts.

Saskatchewan, Alberta and British Columbia courts have more recently provided guidance about the appropriateness of deducting earnings in cases where a dismissed employee to a fixed-term contract obtains other employment during the remaining term of the fixed-term contract. All three of these courts have been faced with employees dismissed under such contracts, and all three were faced with employees who in fact mitigated.

Saskatchewan

In Crook v Duxbury, 2020 SKCA 43 [Crook], Ms. Duxbury was employed under what the parties agreed was a fixed-term employment contract which did not contain any provision regarding early termination. A few months into the employment, Ms. Duxbury was dismissed and as a result, sought out and obtained alternate employment. She sued her employer for wrongful dismissal. In summary judgement proceedings before the Court of Queen’s Bench (2018 SKQB 353), Ms. Duxbury successfully argued that her earnings from her alternate employment should not be subtracted from damages owed to her by her employer, and her former employer appealed.

The Court of Appeal disagreed and subtracted Ms. Duxbury’s earnings from her awarded damages, in accordance with “the usual principle of the law of damages, i.e., recovery is limited to the actual loss” (para 46). In so doing, the Court of Appeal addressed the decisions from Ontario submitted in support of Ms. Duxbury’s position and came to a different conclusion than the Chambers judge about the mitigation principles they address. The Court reasoned that when a breached fixed-term contract is silent on early termination and the dismissed employee in fact obtains alternate employment, that employee’s damages are reduced according to usual damages principles. Duty or not, mitigation applies.

The Court of Appeal was not in a position to decide whether or not a duty to mitigate exists in such a circumstance, as the parties agreed that it did not. The Court also expressed reservations that the contract under review even was a fixed-term contract, however this issue was also not open for review as a result of the parties’ agreement of facts.

British Columbia

The outcome in Crook can be contrasted with a recent British Columbia case, Quach v Mitrux Services Ltd., 2020 BCCA 25 [Quach]. While the British Columbia Court of Appeal adopted a similar analytical approach to that in Crook by relying on British Columbia precedent, the outcome in Quach was very different. This was because in Quach the fixed-term contract contained an early termination clause that specifically entitled the dismissed employee to payment for the entire term of the contract immediately upon termination. Therefore, even though the employee in fact mitigated, he was entitled to receive his full lost earnings anyway – because the employment contract stated as much.

While Crook and Quach ultimately ended in different results for the employers in question, both Courts found that mitigation in fact does have an effect on an employee’s damages, and that this effect turns on the provisions of the contract itself.

Alberta

A recent decision from Alberta Court of Queen’s Bench, Rice v Shell Global Solutions Canada Inc, 2019 ABQB 977 [Rice], similarly affirmed that mitigation principles do not apply where an employment contract specifies the amount payable on termination. However, where a contract, including a fixed-term contract, does not contain a provision of this nature, mitigation principles do apply. In that case, Ms. Rice was dismissed from her fixed-term contract and obtained new employment following her dismissal. Her contract did not contain a provision for early termination. Consequently, her new income was deducted from her ultimate damages which were based on the unexpired term of her contract.

For employers, the decisions in Crook, Quach and Rice as well as the authorities in Ontario serve as reminders of the importance of properly drafting and understanding fixed-term employment contracts. Where improperly drafted or misunderstood, these contracts may expose employers to unanticipated liabilities.

Shifting needs to adapt to COVID-19 and changing markets are a business reality. Employers considering making decisions related to term employees must be mindful of the specific terms of the employment agreement including, particularly, whether or not early termination is addressed, and if so, what that employee may be entitled to receive in the event of early termination.

If you are an employer planning on making employment decisions related to the drafting of fixed-term contracts or assessing ongoing employment relationships with term employees, MLT Aikins has a team of leading labour and employment lawyers across Western Canada able to provide specific legal advice tailored to your needs and circumstances.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice of opinion. Readers should consult a legal professional for specific advice in any particular situation.