Mitigation Issues

Employee Chooses to be Self Employed

This issue was considered in the British Columbia Court of Appeal decision in Forshaw v Aluminex Extrusions, a decision rendered in August of 1989. The plaintiff, at trial, was awarded damages based on a 14 month notice period, based on his annual salary of $68,000.

One month after his dismissal he was offered and declined a new position from a principal of a proposed company intent on competing with his past employer at a salary of $40,000 plus an undefined commission. The plaintiff testified that he did so, without entering into any discussion as to what commission he was to receive. The plaintiff thought the new business unlikely to succeed. As the business was a start-up, there was expected to a period before any sales were made.

A month later, the plaintiff decided to and did commence his own business. The trial judge found no requirement to accept the offer of new employment, a decision from which the appeal was brought.

The court upheld the trial judge and in so doing, described the duty to mitigate as one which is to consider the plaintiff’s own ambitions and interests and not those of the defaulting party:

That "duty"—to take reasonable steps to obtain equivalent employment elsewhere and to accept such employment if available—is not an obligation owed by the dismissed employee to the former employer to act in the employer's interests. It would indeed be strange that such a duty would arise where an employer has breached his contractual obligation to his employee, having in mind that no duty to seek other employment lies on an employee who receives proper notice.

The duty to "act reasonably", in seeking and accepting alternate employment, cannot be a duty to take such steps as will reduce the claim against the defaulting former employer, but must be a duty to take such steps as a reasonable person in the dismissed employee's position would take in his own interests—to maintain his income and his position in his industry, trade or profession. The question whether or not the employee has acted reasonably must be judged in relation to his own position, and not in relation to that of the employer who has wrongfully dismissed him. The former employer cannot have any right to expect that the former employee will accept lower-paying alternate employment with doubtful prospects, and then sue for the difference between what he makes in that work and what he would have made had he received the notice to which he was entitled.

This is an important concept and one which has often been forgotten.

This view was repeated, without reference to the above decision in Peet v Babcock & Wilson, an Ontario Court of Appeal released in April of 2001.

On termination, the plaintiff elected to commence his own business as a consultant. The court concluded that “the fact that the early years of the respondent’s self-employment did not live up to his expectations does not mean that this was an unreasonable attempt at mitigation”.

More importantly, the appellate court decision, written by Finlayson. J.A., stated that the employee has a right to focus on his long term career aspirations and need not focus simply on the immediate short term results to pacify the plea of the employer on the need to show immediate mitigated results.

The respondent’s establishment of a new consulting business was clearly a means of mitigation.  The fact that the early years of the respondent’s self-employment did not live up to his monetary expectations does not mean that this was an unreasonable attempt at mitigation.  An employee who has been terminated is entitled to consider his or her own long-term interests when seeking another way of earning a living. The respondent’s efforts at mitigation cannot be classified as unreasonable simply because his actions did not neglect all other interests while focussing exclusively on his short-term obligation to mitigate damages for the sake of his former employer. 

This case is discussed subsequently on the subject of self-employment.

Both these cases should be considered landmark statements of law.