Mitigation is often a hot topic among plaintiff and defendant lawyers. The theory set out by case law long ago is simply that in that absence of an employment contract when terminated, an  employee is required to take all reasonable steps to mitigate his or her losses by locating or attempting to locate alternate employment. The burden shifts upon the employer to prove that the employee has failed to mitigate his or her losses. What happens when both the employer and employee agree by written contract that a payout in lieu of notice will  be paid upon termination? Does an employee still have a duty to mitigate? I think it’s all about timing.

The case of Graham v. Marleau is a good launching pad. In that case,  Judge Nordheimer noted that there was a duty to mitigate (it is presumed) but there are exceptions, such as a contrary intention expressed in the contract of employment. For those of you the practice employment law, this case is an absolute  must read if you wish to understand the principles of mitigation in employment law and contract drafting. If you’re an employer, read on because the theory is interesting.

The Judge in Graham noted principles from older cases that are not necessary to get into, however if you wish to learn the history of mitigation with respect to employment law, have a read of paragraph 50 and work from there.

The long and short of the Graham case is that the Judge held that an employee has a duty to mitigate unless that duty was explicitly or implicitly waived.  He noted that he agreed that the “thrust of the cases hold that the principle of mitigation ought to apply even where provision that stipulate what (and how much) notice is to be given, or what payment to be made  in lieu of notice, if the termination of the contract occurs. Such stipulation, the Judge noted,  is nothing more than an agreement between the parties as to the length of the reasonable notice to terminate the contract.”

The Judge in Graham was firm on the theory that even if there is a provision that stipulates what notice is to be given, it still does not mean that an employee should not mitigate, unless there were clear exceptions to.  The Judge “did not see reason why there should be any distinction drawn between contracts of employment where notice periods were not stipulated and in those that are stipulated with the result that there would be a duty to mitigate the former but not the latter. If that were the case, it seemed to be an unfair result to the employer simply because they tried in advance to strike agreement and thereby eliminate the issues “of notice”…subject of course to the courts overriding right to  determine the reasonableness such an agreement in any case.”

The Judge found that even if there is an agreement as to the payment in lieu of notice at the time the contract is signed, it would be unfair to the employer that an employee should not mitigate because of this agreement, unless a duty to mitigate was explicitly or implicitly waived. Therefore, there is a very firm presumption that a duty to mitigate is necessary unless it is specifically or implicitly waived.

Specifically the judge noted:

“a)The principle of mitigation applies to a claim arising from any breach of contract, whether fixed- term or of indefinite duration.

b) The principle of mitigation also applies where there is an agreed-upon severance provision.

c) Even where there are agreed-upon severance provisions, there are exceptions to the principle of mitigation. In some cases, the contract of employment can be interpreted

as having exempted, expressly or by implication, the employee from the duty to mitigate. Examples of such exemptions are:

i. There is an express waiver of the duty to mitigate.

ii. There is an express obligation to continue the payments under the employment contract.

iii. The employment contract provides that the severance amount is payable immediately at, or very shortly after, the date of termination, implicitly suggesting a waiver

of the obligation to mitigate as neither the employer or the employee could know whether   mitigation could occur.”

Is important to notice provision “C” and that there is exceptions to the principle of mitigation. The exceptions are simply a reiteration of the theory of mitigation being express or implicitly waived contractually. You can see how important this case is to employment lawyers that draft employment contracts for employers on a regular basis.

There has been jurisprudence that has since applied the Graham case as a prevailing authority in law. You can see by these cases that the difficulty sometimes with mitigation is the timing of the issues.  For example, if the contract states that severance is payable immediately…then how can mitigation take place? If you don’t have an express or explicit waiver in the employment contract of mitigation issues then the timing of issues are going to be your real problem.

For example, in the case of Wells v. Conestega, the contract of employment noted that “the employee  can be terminated without cause immediately upon paying to the employee the termination amount which was stated as the sum equivalent the employee’s base salary for the remainder of the term.” In this case,  Judge Taylor found that the employee was not obligated to mitigate because of the timing issues noted in the contract. The proposition the contract was  that payment of severance is due immediately upon termination. The judge found no duty to mitigate because payment was due immediately. You can see  how this simple issue of noting that the payment is due immediately upon termination suggests implicitly waiver mitigation. It simply makes common sense.

It is important to know understand the principles of mitigation noted in case law when drafting employment contracts. The Court of Appeal has not yet commented on the Graham  case, but  it will be interesting with it does. In the meantime, be careful how you draft employment contracts, particularly the causes of termination and severance in shorter letters of offer and in the provisions of severance and longer contracts offer. This is a timing issues so draft accordingly!