If you thought your relationship with work was complicated while you were employed, it can be far more so after you’ve been wrongfully dismissed.
Stay with me, because it gets a little tricky, but I promise to try and keep it simple.
If you are terminated from your job, your employer has a legal duty to provide you with ‘reasonable notice,’ which is usually money given as pay in lieu of reasonable notice. While that money can be tremendously beneficial after losing a job, it’s not legally meant to be a windfall. That money is only intended to support you and help keep you on your feet until you find new work.
Conversely, your duty is to look for that work. Your former employer is not meant to be your keeper for life – far from it! Whether the time period is negotiated between the parties or handed down by a court, it determines the time period that the former employer is financially responsible for. That time period, of course, can be affected by several factors, such as finding new work quickly. The law is in place so that if you do find new work soon after, you should not then be able to ‘double dip’ when it comes to salary.
What happens, though, if your wrongful termination battle drags on? EI may not be sufficient, or even available, and due to personal circumstances many individuals are forced to take whatever work they can find for the time being. When you do finally settle your matter, should the small amount of earnings you collected in the interim be held against you?
In a landmark ruling from May, the Court of Appeal said 'No.'
Esther Brake was an all-star McDonald’s employee for over 25 years, and a manager in Ottawa-area restaurants since 2004. Her performance for the majority of her career was excellent, until her employer moved her to a struggling location in 2011, and set unrealistic and arbitrary standards for her to turn the performance around. When she was unable to, she was offered a demotion, and when she refused to accept the circumstances she sued for wrongful dismissal.
Ms. Brake was successful at trial, with the court essentially finding that she had been set up to fail. She was awarded 20 months’ pay in lieu of notice, which totalled just over $100,000 dollars, which covered not only her salary but also her health benefits, car allowance, and cell phone expenses.
The employer (PJ-M2R Restaurant Inc., a franchisee of McDonald’s) appealed, arguing not only that Ms. Brake was not constructively dismissed, but that she failed her duty to mitigate (look for new work) when she did not accept the demotion, and that there were issues with her mitigation that followed. The timing here is crucial to note. Esther Brake was fired in 2012, and began her legal proceedings shortly thereafter. Her matter was not heard by the trial court until four years later, and the Court of Appeal roughly four and a half years after she lost her job. Keep that in mind as you read ahead.
The Court of Appeal agreed that the trial judge’s findings were correct, and Brake was constructively dismissed, with 20 months being the appropriate notice period in the circumstances.
When it came down to the issue of Brake’s side income, the trial judge had found that Ms. Brake had also worked as a cashier at Sobey’s, and for a short period at Tim Hortons after her termination. While she applied for jobs broadly, she was unable to find another management position, and her efforts to start her own business were unsuccessful. Eventually she accepted a position as a cashier at Home Depot, which paid significantly less than she had earned as a restaurant manager.
On appeal, the Court ruled that, “there is no magic formula that an employee must follow when making reasonable efforts to obtain other employment.” Furthermore, “A terminated employee is entitled to consider her own long-term interests, so she will not fail to mitigate merely because she chooses to take some career risks that might not minimize the compensation that her former employer will owe to her.” Ms. Brake chose not to apply for any restaurant management positions, and the Court ruled that that was fine. In other words, while a terminated employee does have to look for work, they’re still allowed to have some say in the process.
The trial judge found no reason to interfere with that income or to hold it against her 20-month award. In the end, the Court of Appeal agreed with that as well. The Court noted with clarity than any income Ms. Brake earned after her termination was minimal, and her roles were significantly beneath the one she held prior.
First, the Court ruled, based on previous decisions, that Brake’s earnings from EI were “not received in mitigation of loss” and should not reduce the end result. The Court said so plain as day: " In my view, the law is clear: EI benefits are not to be deducted from damages awarded for wrongful dismissal."
The Court then broke down her Brake’s 20 months into two distinct time periods – the statutory notice period, or the money she was owed at law under the Employment Standards Act (presumably 34 weeks based on her tenure), and the balance of the notice period, or the other approximately 12 months remaining. For the statutory notice period, the Court ruled again that, at law, Brake was entitled to payment for that 34 weeks, and as such no other income should be deducted from it.
For the remaining time, however, the Court chose to reference case law dating all the way back to 1943! In essence, the cases have ruled that if an employment contract is not exclusive, which is to say that an employee is permitted to work in two places at once (as Brake was), and an employee is terminated from their first employer, the income earned in their other position is completely unrelated. So when Ms. Brake informed the restaurant owner that she needed to work at Sobey’s as well, and he replied “do whatever you want to do,” that created a distinct separation between her income streams, and protected one from effectively being deducted against the other in this scenario.
The distinction may seem technical, but it’s a huge one on the ground. Previously, most employment lawyers believed that as soon as their client found another job, the clock essentially started running backwards. However, the Court said that while that is still true if the person finds new work with a comparable salary and responsibilities, however positions that are not comparable in salary or responsibility then they are free to turn it down, or income earned from it may not be held against a damages award from the former employer.
For employers, the lessons here are numerous. While a wrongful termination can be inherently costly for an employer, there may be some relief provided the employee finds other work and effectively mitigates their damages in a short amount of time. However, if the Court now makes it more difficult to subtract new income from any damages, employers may see little relief.
Furthermore, the Court here drew the key distinction that the employer sanctioned Ms. Brake’s alternative employment. Not only was their conduct in her termination costly in the first place, but permitting her to openly take outside employment wound up creating an additional, unforeseen expense. An employment lawyer can help you draft proper, up-to-date employment contracts that structure your employment relationships in a way that best protects your business interests.
For employees, this case opens the door to a whole new approach to wrongful termination. It is no longer automatic that any income earned during a notice period will instantly be deducted from a settlement or award. While terminated employees are still responsible for mitigating their losses and looking for new work, they will no longer be burdened with worry that even modest income will be strictly held against them. It is always wise for terminated employees to review a termination package with an employment lawyer to assess whether or not they are getting the best deal under the circumstances.
The bottom line is that while employers and employees both have responsibilities in this process, employees should not be afraid that working to feed their families will harm them substantially in the long run.