By: Tina K. Lee
An employee suing a former employer for severance has a continuing duty to mitigate or reduce their losses. In other words, they have to make reasonable efforts to find alternate employment throughout their “notice period”. But just how mitigation impacts severance calculations can be tricky.
At a recent summary trial, the court was prepared to award Mr. Hansen a notice period of 24 months, given his 29 years’ loyal service and high-paying, senior managerial position.
The bigger issue was the treatment of mitigation. Typically, income earned during the notice period would be “set-off” against the severance payment. However, Mr. Hansen obtained judgment before that 24-month period had expired. Without a crystal ball, no one knew whether he would secure gainful work during the balance of the notice period, and if so, when. How then, should mitigation and the notice award be treated in those circumstances?
This issue is becoming more and more prevalent. Given the recent modernization of the rules governing litigation procedures across Canada, employees today can significantly expedite resolution by way of summary judgment proceedings, and obtain judgment prior to the expiry of the notice period.
For Mr. Hansen, the court had the option of maintaining the 24-month award, while subjecting Mr. Hansen to ongoing mitigation and set-off obligations. To Mr. Hansen’s advantage, the court instead applied a pre-emptive deduction of 2 months from the award for the contingency that he could secure new employment. This means that Mr. Hansen could potentially recover far more than the first option.
Strategy wise, employees and employers alike have a lot to learn from this case. Employees entitled to lengthy notice periods should speak to an employment lawyer about pursuing summary judgment with favourable mitigation treatment. Employees should also be careful about mitigation obligations. Employers, on the other hand, should strategize carefully on how to structure the most cost-effective severance package given the possibility of mitigation.
By: Tina K. Lee