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How Much Do Employers Have to Pay Dismissed Employees?

Statutory Termination and Severance Pay not to be Reduced by Mitigation Income Earned; Mitigation Expenses Recoverable by Dismissed Employee

This June, the Ontario Superior Court released a decision (Robinson v H.J. Heinz Company of Canada LP, 2018 ONSC 3424) that clarifies how much money employers may have to pay dismissed employees who mitigate most of their damages by promptly securing re-employment elsewhere.

In this particular case, a senior managerial employee resigned from her position after her employer constructively dismissed her by vastly curtailing her managerial responsibilities.

Shortly thereafter, she accepted a new job with another employer in another city and relocated. Since her new job was at only a slightly reduced salary, it almost wiped out all of the income loss that she had suffered as a result of her constructive dismissal.

When her former employer learned of this, it optimistically concluded that she had mitigated most of her income damages and that whatever pay in lieu of notice that it might eventually be ordered to pay her, as a result of its constructive dismissal of her, would therefore be minimal.

Unfortunately for the employer, its optimism on this issue proved to be seriously misplaced. At trial, the Ontario Superior Court ordered that the period of reasonable notice was 15 months. To the employer’s great consternation, the Court ordered it to pay the constructively dismissed employee her full salary for most of the first 5.5 months of that notice period, even though she had suffered very little income loss during those initial 5.5 months. As expected, the employer was also ordered to pay her the slight difference between the old and new salaries for the remaining approximately 9.5 months of the 15-month notice period.

In ordering the employer to pay most of her salary for the first 5.5 months following her resignation, the Court ruled that even though the employee had been earning new income during those months, that income could not be counted as mitigation income because it represented the period of statutory termination and statutory severance pay prescribed under the Employment Standards Act (“ESA”). As noted by the Court, the ESA explicitly provides that those statutory payments must be paid to employees regardless of what income they earn during that initial statutory period; accordingly, those mandatory statutory payments are not reduced by any of the dismissed employee’s mitigation income.

In addition, and to the employer’s even greater dismay, the Court ordered it to reimburse the constructively dismissed employee for all of the costly mitigation expenses that she had incurred in securing, and then relocating to, her new job.

Ultimately, the employer was ordered to pay her more than $45,000 in mitigation expenses, including her moving expenses to the new city and the real estate commissions and legal costs she had had to pay on the purchase and sale of her home. This was in addition to the Orders to pay pay-in-lieu of notice and legal costs to the constructively dismissed employee.

This judgement shows just how expensive it can be to constructively dismiss an employee. Employers must therefore tread extremely carefully when they decide to change the roles or positions of employees within their organization and should consult an employment lawyer if there is any risk of the change being significant.