Working Out Mitigation: Some recent issues in the form of reasonable notice and the duty to mitigate

INTRODUCTION

In dealing with the dismissal of any employee, both the employee and the employer must negotiate a host of legal minefields. 

Two central concerns in navigating the end of the employment relationship are the employer’s duty to provide reasonable notice and the employee’s duty to mitigate the loss of his or her position.

Often, to encourage an efficient termination of the employment relationship, an employer will prefer to provide payment in lieu of notice rather than have an employee work out the period of notice.  However, sometimes - especially where an employee is senior and/or possesses expertise necessary to the completion of a specific task - the employer may instead require the employee to work out the period of reasonable notice.  If the employer decides to require the employee to work out the notice period, and the employee consequently is unable to actively look for new employment, does the employee have any recourse? Can an employer be required to provide payment in lieu of reasonable notice instead of working notice?  A case of the New Brunswick Court of Appeal had suggested an affirmative answer,[1] but recently, the Ontario Court of Appeal made some significant comments about the form of reasonable notice.  In Taylor v. Brown, the Court opined on whether payment in lieu of reasonable notice was functionally equivalent in law to working notice.[2]  The Court determined that both forms of notice were legally equal and equally valid.  The Court of Appeal’s discussion, although not directly on point, may limit or foreclose the potential for employees to object to the employer’s decision to give them working notice rather than payment in lieu of notice.

A separate but related issue to that of working notice is the employer’s option to offer an employee who is being removed from a specific position an alternate position.  Is an employee required to mitigate by accepting an alternate position with her employer, even where she considers the new position a demotion and thus legally constructive dismissal?  Mifsud v. MacMillan Bathurst Inc.[3] remains the leading case in the area, standing for the proposition that an employee may be required to mitigate by accepting an alternate position with the employer, even where – in some circumstances - the new position is a demotion.   However, Mifsud has been heavily distinguished, leaving the question of when an employee must accept a position which is arguably a demotion unsettled.

WORKING NOTICE VS. NOTICE IN LIEU

Overview
Generally, working notice and payment in lieu of notice are not considered to be functionally different, despite the fact that finding alternate employment may be made more difficult by a period of working notice. Therefore, working notice will normally be considered part of the notice period.

A few cases have stated that working notice will not be considered as part of the notice period where there was no opportunity for the dismissed employee to seek alternate employment during the working notice period. In light of Taylor, it is arguable that these cases would apply in Ontario.

General Principle

Generally, working notice and payment in lieu of notice are treated as equivalent.  It is up to the employer, not the employee, to decide whether an employee works through the notice period or is paid in lieu.[4]  Most judges agree that an employee who has been given notice does not have the right to withdraw her services and demand pay in lieu instead.[5] 

The Ontario Court of Appeal has determined that there is no functional difference in law between the two forms of notice warranting the provision of a shorter notice period when providing a payment in lieu of notice as opposed to working notice of termination. In Taylor, the Court of Appeal determined that the trial judge erred in concluding that the initial offer of 18 months working notice (which was subsequently revoked and replaced with an offer of six months in lieu of notice) was reasonable, but then in ordering only 12 months payment in lieu.  In the result, the Court of Appeal awarded the appellant 18 months notice in lieu. 

The Court stated that:

While the purpose of the notice period is to provide time for employees to find alternate employment, a task made more difficult while the employee undertakes to fulfill the terms of working notice, we are of the view that there is no functional difference at law between working notice and payment in lieu of notice . . .

Proper notice of termination is an implied term of the contract of employment; payment in lieu of notice is not.  We agree with the opinion of Lambert J.A. in Dunlop v. British Columbia Hydro and Power Authority (1988), 32 B.C.L.R. (2d) 334 (C.A.), when he states at pp. 338-39 that payment in lieu of notice is seen as “an attempt to compensate for [the employer’s] breach of the contract of employment, not as an attempt to comply with an implied term of the contract of employment.”  The quantum of a payment in lieu of notice, therefore, is not calculated in accordance with the terms of the contract, but rather is a means by which an employer may terminate an employee contrary to its common law duty to give reasonable notice of termination, without incurring any liability.

This position is supported by the wording of the Employment Standards Act . . . the Act authorizes the provision of pay in lieu of notice in the amount that would have been earned if proper working notice had been provided.[6]

Taylor did not address a situation in which working notice was paid and the employee was actually unable to look for work. There may consequently be some room to distinguish Taylor on the facts in a case where an employee was required to work out her notice of termination and consequently was unable to seek new employment.

The principle is nonetheless clear.  Working notice will generally be credited to the employer in determining the period of reasonable notice owing.[7] As suggested in Taylor , working notice will be considered as part of the notice period, despite the fact that working notice may make finding alternate employment more difficult. 

Possible Exceptions

However, a few cases have suggested exceptions to the parity between working notice and notice in lieu where: i) it was not reasonable in the circumstances to have provided working notice rather than notice in lieu; or ii) the working notice did not allow the employee to seek alternate employment.

i)    it was not reasonable in the circumstances to provide working notice rather than notice in lieu

In Ahmad v. Procter & Gamble Inc., the Ontario High Court of Justice concluded that the employee was entitled to be paid for a three month notice period during which he was expected to continue working but, upon legal advice, chose to consider his employment contract repudiated.[8]  The court held that, in light of the significant forewarning (not actual notice) of the end of his position, the employee should have been looking for other employment and a shorter notice period was warranted.  However, with regard to the period of working notice, the court stated that:

The company clearly wished Mr. Ahmad to continue working in these months and to co-operate in setting up the system which was to be responsible for his termination.  Whatever the technical aspect might be to this, it was, in my view, asking too much to expect Mr. Ahmad to continue working through the notice period.[9] 

Ahmad may create some room for the payment of notice in lieu in a case where an employee, considering the employment contract repudiated, refused to work out the notice period.  However, even if logic of Ahmad were followed, it likely would not apply where the employee did in fact work out the notice period, such that payment was made for the period of working notice. 

the working notice did not allow the employee to seek alternate employment

The high water mark of this exception is Bramble v. Medis Health and Pharmaceutical Services Inc., in which the New Brunswick Court of Appeal refused to credit the employer with the 15 weeks’ working notice it provided the respondents.[10]  The Court stated that to do so would permit formalism to triumph over substance.  The Court of Appeal held that:p

The trial judge’s finding of fact, with respect to the working notice’s practical value, is unequivocal and clear: the respondents “could not actively seek work during the working notice period”...That being so, the portion of the overall notice periods spanning the working notice is, for all intents and purposes, illusory . . .

The primary objective of notice is to provide the dismissed employee with a fair opportunity to obtain similar or comparable employment.  It follows that the weight to be given to a particular working notice will vary depending on the quality of the opportunity it gives the employee to seek an alternate position.  In this particular case, the trial judge’s finding of fact that the respondents could not actively seek work during the working notice period deprives the latter of any legal value.  As a result, no weight can legitimately be attached to it.[11] 

Bramble v. Medis Health was cited and applied with respect to its discussion of working notice in Holmes v. Irving Shipbuilding Inc.,[12] although in that case the court held that the working notice should be deducted from the notice period because the employee was provided with reasonable opportunity to seek alternate employment through access to human resources services and a fax machine. 

Bramble v. Medis Health also referenced the decision in Norrad v. LaHave Equipment Ltd., in which the court determined that four weeks working notice was not notice where the employee was expected to report to work to complete the odds and ends of the sale.[13] 

There do not appear to be any Ontario cases in which Bramble v. Medis Health was expressly followed or rejected on this point or in which a similar exception was applied. However, a couple of Ontario cases have referred to the opportunity to seek alternate employment during working notice as a potentially relevant factor. 

In Kontopidis v. Coventry Lane Automobiles Ltd., the court, in determining that four months was a reasonable working notice period and that the manner of dismissal was not in bad faith, noted that the employer gave the employee “the opportunity to search for employment during the notice period”.[14] 

In Cowper v. Atomic Energy of Canada Ltd., the court concluded that the appropriate notice period in the circumstances was 27 months.  In so concluding, the court stated that:

In arriving at this conclusion, I have taken into consideration the factors I have already referred to along with the fact the plaintiff had three months of working notice, at which time he had very little time to search for new employment, as he was assigned to complete a project in China.[15] 

Despite the reference to the lack of opportunity to seek employment during the three month working notice period, the court ordered the three months of working notice to be deducted from the 27 months of notice awarded. 

In the result, it does not appear likely that, in Ontario, Bramble v. Medis creates an exception to the principle expressed in Taylor, i.e., that working notice constitutes notice despite the fact that it may make seeking alternate employment more difficult.  However - since Taylor did not address whether the practical inability to search for work is relevant in considering working notice - there may be an arguable case that the logic of Bramble v. Medis properly applies. 

A DUTY TO MITIGATE BY DEMOTION? AN UPDATE ON MIFSUD

Overview
Mifsud, supra, is still the leading case on the duty to mitigate by accepting an alternate position with the employer. In Misfud, an employee was required to take a position which the court conceded was a demotion, albeit at the same salary.

According to Mifsud, an employee who has been constructively dismissed may be reasonably required to mitigate by taking an alternative position with the employer where:

• The position does not involve a significantly reduced salary;
• The position does not involve significantly different or demeaning working conditions; and
• The personal relations between the employee and employer are not acrimonious.

Misfud has been repeatedly distinguished and/or not followed.[16]  Some of the factors considered by courts in distinguishing Mifsud include:

• Whether the new position involves a demotion which is humiliating to the employee, particularly if she must work at the same worksite with the same co-workers;
• Whether the new position involves performing tasks previously performed by subordinates, or the freezing of a salary;
• Whether the new position is less beneficial for future promotions or involves fewer responsibilities;
• Whether the transfer was justified based on an employee’s work records (as in Misfud) or was based on external factors;
• Whether the employee was induced into a supervisory position and then offered a lesser position, or worked her way up in the company; and
• Whether the treatment by the employer was demeaning.

Mifsud

In Mifsud v. MacMillan Bathurst Inc., the Ontario Court of Appeal held that a Superintendent who refused to take a position as a Foreman which would “reduce [his] over-all responsibilities somewhat, [but leave] his salary and benefits...unaffected” had failed to mitigate his damages.[17]  The Court accepted that the move was a demotion because the new position had less prestige, fewer responsibilities and substantially fewer employees to supervise.  The Court considered relevant to mitigation factors such as:

• the fact that Mifsud was originally employed as a die cut operator, and had worked his way up in the company, in contrast to a supervisory employee who is originally hired away from another employer;[18]
• the fact that his salary was unchanged; and
•the fact that he was not “red-circled” by the company, so that his potential for future advancement would depend entirely on his own performance.

The Court stated that:

The fact that the transfer to a new position may constitute in law a constructive dismissal does not eliminate the obligation of the employee to look at the new position and evaluate it as a means of mitigating damages.  In all cases, comparison should be made to the contractual entitlement of the employer to give reasonable notice and leave the employee in his current position while a search is made for alternative employment.  Where the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships are not acrimonious (as in this case) it is reasonable to expect the employee to accept the position offered in mitigation of damages during a reasonable notice period, or until he finds acceptable employment elsewhere.[19]

Subsequent Cases

Some cases have followed the logic of Mifsud; see, e.g. Farquhar v. Butler Brothers Supplies Ltd., which held that an employee may have to mitigate where a reasonable person would accept the position and there is a situation of mutual understanding and respect between employee and employee.[20]

An employee may also have to accept a “lateral transfer” to a position which might be considered a demotion by some employees but which is not a menial position or a position with a seriously reduced salary.[21]

Ball, in Canadian Employment Law, states that:

Mifsud is, not surprisingly, seldom applied and has been heavily distinguished.  An obligation to continue working for the employer will arise in a situation of mutual understanding and respect and where neither the employer nor the employee is likely to put the other’s interest in jeopardy.

An employee does not have to mitigate by taking a significantly reduced salary or a significant demotion.[22] 

A number of cases have distinguished Mifsud on a variety of grounds.  For example, in Grace v. Reader’s Digest Assn. (Canada ) Ltd., the Court outlined the following bases for distinguishing Mifsud:

• In the case at bar, there was a clear demotion in the company hierarchy out of the management team, whereas in Mifsud “the plaintiff was essentially offered a lateral transfer”;
• In the case at bar, there was a threat to compensation through the potential loss of commissions, whereas in Mifsud the plaintiff was offered the same compensation;
• The offer made in Mifsud was of a fresh start in a new plant, versus Grace, who “suffered the humiliation of a demotion and the deterioration of relations with his co-workers”; and
• In the case at bar, Grace suffered demoralization because of Reader Digest’s underhanded behaviour in negotiated the new position.[23]

As determined in Galbraith v. Acres International Ltd., an employee is not required to take an alternative position where it would involve him performing duties previously performed by subordinates, being put on a fixed term contract, and having his salary frozen.[24] The Court of Appeal upheld this decision, noting that “the finding that the alternative offered to the respondent was demeaning to him” is sufficient to excuse not taking the position.[25]

In McNeil v. Presstran Industries, the Court of Appeal upheld the trial judge’s decision that the employee was not required to mitigate where his working conditions would be substantially changed by a move to a “lesser position”, where his salary would be frozen and he would be required to vacate his office.[26] 

Some cases have held that a move to a position which was less beneficial from the view of future promotions and in terms of the number of personnel the employee supervised is constructive dismissal which a reasonable employee is not required to accept.[27] 

An employee did not fail to mitigate where a transfer was not justified based on his work record, included the loss of a bonus, and meant he would no longer be a member of the executive committee.[28]  It is not reasonable to expect an employee to remain in a position that would be a demotion in authority and responsibility, especially if combined with demeaning treatment by the employer.[29]

Therefore, the potentially onerous impact of Mifsud on employees who have been constructively dismissed by demotion appears to have been significantly modified by subsequent cases.

CONCLUSION

The mutual obligations arising upon the dismissal or constructive dismissal of an employee raise a host of complicated legal issues.  Central to the obligations on both sides of the employment relationship is the recognition that the employee must be able to - and is responsible for - seeking out new employment.

A potential obstacle to the search for new employment is the employer’s ability to require an employee to work out the period of reasonable notice.  The Ontario Court of Appeal’s recent comments in Taylor may have foreclosed any opportunity for an employee to object to the requirement that she work out the notice period on the basis that the form of notice prevents her from seeking alternate employment.

During a working notice period or until having found alternate employment, an employee may be required to mitigate her damages arising out of constructive dismissal by accepting an alternate position with the employer which is in some respects a demotion.  However, a number of cases have used a variety of rationale to hold that an employee is not required to mitigate by remaining with the employer in a different position.