An employer tried to reduce its severance pay obligation by ceasing payments to a terminated employee when he found new employment. In the case (Allen v. Ainsworth in BC Supreme Court), the employer unilaterally gave working notice and removed the employee’s duties. In essence, the employee was being paid to stay away. When the employee found other employment during the notice period, the employer stopped paying his salary. The terminated employee sued and recovered the whole of the unpaid contracted severance. The Court of Appeal agreed with the result.
The case illustrates that where the parties agree in advance to (sometimes lengthy) severance provisions, there is no contractual duty for the employee receiving such notice to mitigate damages by looking for or obtaining alternate employment. In this case, the employer may have intended to get around this problem by paying the employee to stay away. The employee, likely thinking the payments would have to continue for the whole contracted severance period, found other employment. He was likely surprised when the employer stopped paying.
This issue might be addressed by inserting clauses in employment contracts requiring employees to make efforts to mitigate their damages or providing that, if they do mitigate, the employer’s obligation to pay severance pay is reduced. It is not that simple though – requiring mitigative efforts introduces an element of uncertainty into the employment contract. What if the employer believes the efforts are insufficient? The parties might just end up in court when they thought that having a contract would avoid that result.
Having a clause reducing severance by actual mitigation makes more sense, however, it will require employers to monitor the employee and theoretically require the employee to “report” to the employer. Employees could take on work and defer salary to attempt to avoid such clauses. Again, the parties might end up in court.
We believe in a more practical solution – the parties should address the potential for mitigation in negotiating the notice period when entering into the contract. For occupations where there is high turnover, less notice makes sense. For occupations or jobs which are highly specialized or in a remote location, more notice makes sense.
Alfred Kempf can be reached at (250)869-1215 or at firstname.lastname@example.org