Employment Contracts

Fixed Term & Set Severance – Modern

The above summary is no longer good law.

This issue was considered by an unusual five justice panel of the Ontario Court of Appeal in Bowes v Goss Power Products In June of 2012. Prior to this decision, the accepted standard was that there must be words in the contract to show that mitigation was not required.

In this case, the employment agreement required that the company provide Goss six months’ notice or pay in lieu if his employment was terminated without cause. The termination letter, as opposed to the employment contract, stated that he would be paid this sum over 6 months subject to the plaintiff’s agreement to take reasonable mitigation efforts and report on same to the employer.

Two weeks after termination, Goss found new employment and reported this to the employer. He was then paid only the ESA sums due of 3 weeks.

At first level, which was a motion’s application, the decision denied the plaintiff’s claim, on the basis that where the agreement is silent on mitigation, as was this one, that the obligation of mitigation is presumed. The trial judge concluded that the agreement must contain words which relieve the plaintiff of the need to mitigate, which were absent in this instance.

This decision was based on precedent cases, the foremost of which was Graham v Marleau, Lemire Securities, a 2000 decision of Justice Nordheimer. This latter decision provided an exhaustive review of prior cases on fixed term contracts and fixed severance terms. It came to the conclusion that there must be express words in the contract to see that no mitigation is required.

 I confess that I do not find it easy to reconcile all of these cases. However, I believe that the following general conclusions can be drawn from them:

(a) whether a contract is a fixed term contract or a contract of indefinite duration, the principle of mitigation applies to a claim arising from any breach of that contract, and;

(b) in cases where there is an agreed upon severance provision, the principle of mitigation also applies to that provision, but;

(c) there is an exception to that second conclusion in cases where the contract of employment can be interpreted as having exempted, either expressly or by implication, the employee from the duty to mitigate. Examples of such exemptions are:

(i) an express wavier of the duty to mitigate[2] as in Neilson;

(ii) an express obligation to continue to make the payments under the employment contract as in Paquin;

(iii) where the contractual provision provides that the severance amount is payable immediately at, or very shortly after, the time of the termination as in Borkovich and Rossi. In such cases, the fact that the payment is to be made prior to the time when either the employer or the employee could know whether mitigation could occur implicitly suggests a waiver of that obligation.

The Court of Appeal rejected this approach, reasoning firstly that by putting a cap on the period of compensation as in this case of 6 months, the parties have gained certainty to the bargain and eliminated the common law claim.

The court continued to state that an employment agreement which sets a fixed term or payment in lieu should be treated as fixing liquidated damages or a contractual amount, and hence in such cases, there is no mitigation obligation nor is any offset if there successful mitigation.

Damages for the contracted notice period should not be seen as the same as a common law claim. The two are distinct. Other features of the contracted bargain, in this case, apart from the notice period, stipulated that the damage sum excluded bonus sum ( valued at 50% of the appellant’s base salary), car allowance and certain other benefits which at common law, would be fair game to be included in the damage claim.

On a principled issue, it is worthy of note that the Court of Appeal referenced the Supreme Court of Canada decision in Machtinger with these words:

Graham raises similar concerns regarding the potential for unfairness to the employer that could arise if a duty to mitigate were not imposed on the employee.  Graham states, at para. 53, that to not require an employee to mitigate when a fixed term of notice is agreed to in the contract “would seem to be an unfair result for the employer simply because the parties tried to agree in advance on the proper notice”.  I do not share this concern for a number of reasons.

[55]         It is worthy of emphasis that, in most cases, employment agreements are drafted primarily, if not exclusively, by the employer.  In my view, there is nothing unfair about requiring employers to be explicit if they intend to require an employee to mitigate what would otherwise be fixed or liquidated damages.  In fact, what is unfair is for an employer to agree upon a fixed amount of damages, and then, at the point of dismissal, inform the employee that future earnings will be deducted from the fixed amount.

[56]         Notably, the concern expressed in Graham seems to disregard the oft-observed disparity in bargaining power between employee and employer.  On this point, Iacobucci J. endorsed the following excerpt from K. Swinton, “Contract Law and the Employment Relationship:  The Proper Forum for Reform” in Barry Reiter and John Swan, eds., Studies in Contract Law (Toronto: Butterworths, 1980) 357, at p. 363, in both his decisions in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at p. 741, and Machtinger, at p. 1003:

[T]he terms of the employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does.  Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure.

(See also Slaight Communications Inc. v. Davidson, 1989 CanLII 92 (SCC), [1989] 1 S.C.R. 1038, at pp. 1051-52.)  Moreover, in contrast to the concerns about fairness noted in Graham, the excerpt from Hutchison L.J.’s reasons in Abrahams, above, emphasizes the potential unfairness to employees inherent in the approach proposed in Graham.

In 2016, the Ontario Court of Appeal extended this principle to a contract of a fixed term holding that, absent words to the contrary, there will be no mitigation obligation. (leave to appeal refused )

Prior to this line of cases, the accepted view was that of the decision of Nordheimer, J., as set out above.


The Goss decision was referenced with approval in the January 2015 Manitoba Queen’s Bench decision of Halischuk v Color Ad Packaging.

British Columbia Cases

An early B.C. did note, in obiter, as no such contractual term was found, that a provision in an employment contract which sets a fixed termination sum would not require mitigation. The court stated: 1

....  If the evidence supports the existence of the implied term, then there was a contractual obligation to pay six months’ salary if employment was terminated without notice. In those circumstances the issue of mitigation would never arise.

The B.C. Court of Appeal had determined, as referenced in that decision of Nordeimer, J., that in a fixed term contract, the mitigated income should offset the claim. It did not decide whether there was a duty to mitigate, but rather, where there had been mitigated income, such will reduce the claim.

However, a similar clause was reviewed by the British Columbia Court of Appeal in its 2013 decision in Allen v Ainsworth Lumber. The parties had agreed to a notice provision which read as follows:

Should it become necessary for Ainsworth Lumber Co. Ltd to sever our relationship, without cause, we will provide you with 15 months notice or pay in lieu pursuant to this paragraph shall discharge Ainsworth Lumber from any and all obligations which it may have to you arising from or in connection with this severance relationship.

The company advised the plaintiff of the operative notice period but also removed from him his working responsibilities contemporaneously, which Allen rightly asserted to be termination.

He succeeded in finding new employment during the agreed 15 month period, which was determined by the Court of Appeal not to impact his claim for the 15 month severance sum.  This is an important decision in B.C. and one at odds with Quach referenced below.

This question was revisited by the B.C. Court of Appeal in 2014, which again confirmed the above law as correct in Maxwell v British Columbia:

Where a contract provides for the effect of termination, generally the provisions of the contract prevail.  Recourse to the common law is not required.  In some circumstances, the contract may require mitigation, but where it does not the innocent party is entitled to what was agreed.  The guilty party is not entitled to graft onto the bargain struck by the parties additional terms that dilute or modify the entitlement of the innocent party.

[28]        In the present case, the contract specifically provides that if the respondent was terminated without cause, “the College shall provide an all-inclusive payment in lieu of notice”.  It continues to specify the components of that payment.  I see no basis on which it could be contended that the respondent was obliged to mitigate and that her failure to do so would relieve the appellants from their contractual obligations.

Neilsen was again reviewed in 2020 by the B.C. Court of Appeal in Quach. It stated as follows:

Neilson has been followed by this court in Mosher v. Epic Energy Inc., 2001 BCCA 253, and Alsip v. Top Rollshutters Inc. dba Talius, 2016 BCCA 252. In addition, Neilson was relied upon by Justice Major in Wells v. Newfoundland, 1999 CanLII 657 (SCC), [1999] 3 S.C.R. 199 at para. 65, for the proposition that in a contractual claim, whether arising from a fixed‑term contract or not, the usual rules of mitigation of damages apply.

[39]        The result of these authorities, in my view, is that in British Columbia, on the authority of Neilson, the fixed‑term nature of a contract does not entitle the employee to damages in the full amount of unpaid wages for the balance of the term without deduction of monies earned elsewhere during the term, absent a provision otherwise. In this way Neilson is at odds with Howard but not Bowes.

In Mosher, however, all parties agreed that there was a mitigation obligation, even though termination took place under a fixed term contract. Similarly in Alsip, the plaintiff’s submission was that mitigation earnings should reduce the claim.

In Wells, there was no written contract.The Court noted:

The respondent’s contract could be terminated in one of three ways:  by his resignation or death, by his attaining the age of 70 or for bad behaviour.  The respondent could choose to leave at any time, but could not be terminated with notice.  It was neither a contract for indefinite employment, nor for a fixed term.  The respondent’s damages must be calculated based on his loss of the chance to serve his full term and earn the accompanying salary and benefits.

With respect, it is a stretch and then some to conclude that these three cases support the ratio of Neilson. Ainsworth was notable by its absence in the decision.

The 2020 Court of Appeal decision, however, noted that the contract in question set out the sum due on termination and hence met the exception of Neilson in that the severance sum was “otherwise provided”. That being said, the Court stated its position with respect to mitigation and fixed term contracts:

        I mention all of this lest the judge’s reference to Howard, and our silence on it, be taken as agreement with the conclusion that in all cases of fixed‑term contracts, mitigation of damages may not be considered. Instead, I suggest the jurisprudence is to the effect that consideration of mitigated damages will depend on the particular termination provisions of the contract at issue.


The Saskatchewan Court of Appeal concluded that the Ontario decisions did not clearly spell out the consequence of successful mitigation. It did agree that these cases precluded the duty to mitigate, yet, where mitigation was successful in this context, it determined such mitigated income should reduce the claim. The passage reads as follows:

However, in the Court’s final remarks on the issue, the principle was not as clearly expressed as it might have been in terms of the absence of a duty to mitigate in such circumstances:

[44]      In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation. Just as parties who contract for a specified period of notice (or pay in lieu) are contracting out of the common law approach in Bardal v. Globe & Mail Ltd. (1960), 1960 CanLII 294 (ON SC), 24 D.L.R. (2d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed term without providing in an enforceable manner for any other specified period of notice (or pay in lieu).

The Saskatchewan Court continued:

[40]           Nonetheless, given the Court’s reasoning, I am unable to read Howard as definitively standing for the proposition that, where an employee has in fact mitigated his or her loss, mitigation is not to be taken into account in the assessment of damages. Moreover, procedurally, the question as to whether the employee in Howard had in fact mitigated his loss was not squarely before the Court because the “quantum of damages, subject to mitigation, was to be assessed at a mini trial” (at para 2).

New Brunswick

This issue was again reviewed in February of 2023 in New Brunswick in a labour arbitration which determined that the Ontario cases should prevail.


The Alberta Court of Queen’s Bench in Lovely v Prestige Travel, a 2013 decision of Wakeling J., also came to the same determination as the Ontario cases, that there is no mitigation obligation or even a reduction where relevant, in a fixed term contract, using the Goss decision as support for this determination:

An employee bound by a fixed-term contract with a provision which allows the employer to terminate the agreement before the end date may sue for the enforcement of the early termination term and is entitled to judgment for the full contractual amount without having to account for any employment income he received from other sources or any failure on his part to pursue employment opportunities. ….

[124]         Principle speaks against introducing mitigation into a fact pattern featuring an express contractual term which allows an employer to terminate a fixed-term employment contract by paying a specified amount to the employee. Unless the contract provides that a lesser sum may be paid under prescribed conditions the promisor must pay the promised amount. Employers and employees bargain specific terms to secure certainty and eliminate the legal costs associated with hammering out the exact contours of flexible standards. I agree with the Ontario Court of Appeal’s opinion in Bowes v. Goss Power Products Ltd., 351 D.L.R. 4th 219, 237 (2012) that an employer should not be allowed to take inconsistent positions in an employment contract and before the courts:

It would be unfair to permit an employer to opt for certainty by specifying a fixed amount of damages and then allow the employer to later seek to obtain a lesser amount at the expense of the employee by raising an issue of mitigation that was not mentioned in the employment agreement.

[125]         The explanation which most satisfactorily accounts for this disposition is that the plaintiff sues for a contractual sum and not for damages at large. The employer did not breach the employment agreement by deciding to exercise the contractual right to terminate the employment contract before the end date.

The wording of the contract should nonetheless address this issue. Clear language should be used to craft either a distinct termination provision or address the mitigation issue directly and avoid the need for controversy.