Damages for lengthy notice period cut in half for failure to mitigate

The Ontario Court of Appeal’s recent decision in Humphrey v. Mene Inc.,¹ highlights two important principles that affect an employee’s damages on a wrongful dismissal claim:

• The common law reasonable notice period owed to employees is based on all of the circumstances surrounding employment and termination. In this case, the employee’s abrupt termination shortly after a promotion dimmed her re-employment prospects, leading to an unusually long notice period.
• Wrongfully dismissed employees must make a reasonable effort to mitigate their damages by looking for new employment. In this case, the employee’s failure to accept a reasonable post-termination job offer resulted in her sizeable notice damages being cut in half.

Background

Ms. Humphrey was employed by Mene Inc. and its parent company for just under three years. At the time of her dismissal, she was 32 years old and had recently been promoted to Mene’s chief operating officer, earning an annual salary of $90,000 and participating in its bonus/stock option plan. 

Six months after her promotion, Mene terminated Ms. Humphrey’s employment. The circumstances of the termination were acrimonious, including an unfounded allegation of just cause. Ms. Humphrey commenced a wrongful dismissal action and alleged Mene acted in bad faith. 

Following her termination, Ms. Humphrey did not apply for new positions for six months. In the seventh month post-termination, she refused an employment offer as vice-president E-commerce with compensation comparable to her role with Mene. Her counter-offer for a more senior role and higher pay was rejected by the prospective employer.

The motion judge concluded that Ms. Humphrey’s reasonable notice period was 12 months. In addition to considering her age, length of service, character of employment, and the availability of similar employment, the motion judge also concluded Ms. Humphrey would have a more difficult time finding a new position because “she would have to explain to prospective employers why she was terminated so soon after her recent appointment.” 

The motion judge also considered Ms. Humphrey’s mitigation efforts, reducing her damages by one month for her delay. However, the motion judge did not find the vice-president role comparable to Ms. Humphrey’s position with Mene, and thus did not reduce her damages for rejecting that position. 

Ontario Court of Appeal

On appeal, the Ontario Court of Appeal considered a number of issues. This update focuses on the court’s decision regarding reasonable notice and mitigation.

Lengthy Notice Period Upheld 

The court acknowledged that considering the traditional reasonable notice period factors in isolation (e.g., Ms. Humphrey’s young age or brief service) might suggest that a 12-month notice period was too high. However, the court emphasized that the objective of fixing a reasonable notice period is to determine how long it would reasonably take for the terminated employee to find comparable employment. As such, when determining reasonable notice, all of the relevant circumstances that would affect Ms. Humphrey’s ability to find another comparable position must be considered. 

The motion judge did not err in considering the difficulty Ms. Humphrey would face in explaining why she was terminated soon after her promotion, and the court declined to find that a 12-month notice period was inappropriate in the circumstances. 

Notice Damages Reduced by Half for Failure to Mitigate

The court did, however, reduce Ms. Humphrey’s notice damages by half. 

In doing so, the court reiterated that terminated employees have a duty to mitigate damages by seeking and accepting reasonably comparable employment, and employers bear the burden of establishing that employees have failed to mitigate their damages. 

The court found no error in the motion judge’s reduction of Ms. Humphrey’s damages by only one month for her delay in seeking new employment. That delay, while excessive, was explained in part by the impact the termination had on Ms. Humphrey. A reduction of only a single month was “generous,” but it was a decision entitled to deference. 

The court found the motion judge erred in finding that Mene failed to prove Ms. Humphrey should have accepted the vice president role offered during her notice period. It was an error to find the role was not comparable to her former position. Comparable employment does not mean identical employment. Mene provided evidence that Ms. Humphrey had turned down a position that could reasonably have mitigated her damages. As a result, she was not entitled to recover damages for the balance of the notice period.

The court reduced Ms. Humphrey’s damages in lieu of notice to six months’ compensation, taking into account her rejection of the job offer and her delay in applying for jobs. 

Takeaways

Humphrey v. Mene Inc. serves as a helpful reminder for employers on these two issues:

• In estimating an employee’s reasonable notice period employers should consider all of the circumstances that might affect the employee’s ability to find comparable employment. While age and length of service are important factors in that assessment, they are not determinative. 
• While employers can cite an employee’s failure to mitigate to reduce wrongful dismissal damages, they must remain mindful of their onus of proving that failure. Employers must prove jobs were available but not pursued by the terminated employee. Employers can do so in a variety of ways, including monitoring the post-termination job market and by obtaining records of the employee’s job search efforts during litigation. When done effectively, and in the right circumstances, this can result in considerable cost savings for employers.