period or were earned from “inferior employment.” The court also
found that EI benefits received during the notice period could not
be used to reduce wrongful dismissal damages.
IMPLICATIONS IN LIGHT OF
HADLEY V. BAXENDALE
The rule in Hadley v. Baxendale holds that upon a breach of con-tract,
the plaintiff shall be entitled to damages that “make them
whole.” Damages should place the plaintiff in the same position
they would have been in had the contract not been breached.
As a result of Brake, a wrongfully dismissed employee may be
placed in a better position than they would have been in had the
employer complied with the employment contract. It is an im-plied
term of every contract of employment that, absent cause for
dismissal, the employer will provide an employee with reason-able
working notice of their dismissal. An employer can satisfy
this obligation by paying the employee damages in lieu of notice.
Reasonable notice damages are calculated based on what the em-ployee’s
earnings would have been during the notice period – no
more and no less.
However, a terminated employee has an obligation to act rea-sonably
to lower her damages from her loss of employment. In
practice, this means the employee has a duty to make all reason-able
efforts to secure comparable employment. Ordinarily, this
“mitigation” income reduces the damages an employer must pay.
Nevertheless, the Brake decision clarified that not all “mitiga-tion”
income reduces damages. The court found that the following
income does not reduce damages:
1. Income earned during the statutory notice and
2. EI benefits received during the reasonable notice period; and
3. Income earned from an “inferior position.”
1. Income earned during the statutory
notice and severance period
The court held that income earned during the statutory entitle-ment
period, that is the minimum period of notice and severance
dictated by the Employment Standards Act, 2000 (ESA), is not de-ductible
as mitigation income. Statutory entitlements under the
ESA are not subject to mitigation because they are not damag-es.
These amounts are not linked to any actual loss suffered by the
employee, but are payable in any event.
The result of this holding is that a terminated employee may
receive more than she would have been entitled to had the employ-er
complied with the employment contract and offered reasonable
working notice of termination. The employee will receive her
statutory entitlement to notice and severance pay (if applicable),
and in addition any income she earns from a new job during that
2. EI benefits
The court held that EI benefits received during the notice peri-od
are not to be deducted from a damages award for wrongful
dismissal. EI payments provide temporary income support to un-employed
workers while they look for employment or upgrade
their skills. It is commonplace for an employee who is dismissed
without cause to apply for and receive EI benefits. It is also rel-atively
common for a dismissed employee to obtain a severance
settlement from her employer. If the CRA does not learn of the
settlement, or does not insist on repayment of EI benefits, the re-sult
will be that the employee will receive more than she would
have been entitled to had the employer simply provided reasonable
working notice. This is another example of how Brake can place
a terminated employee in a better position than she would have
been in had the employer complied with the employment contract.
3. Income earned from “inferior employment”
The court held that where a wrongfully dismissed employee is
effectively forced to accept a much inferior position because no
comparable position is available, the amount earned in that po-sition
is not to be deducted from wrongful dismissal damages.
While an employee is not required to take an inferior position
to mitigate her losses, this scenario still places the employee in a
better position than she would have been in had the employment
contract be followed.
The decision in Brake clearly benefits dismissed employees.
Employers need to keep in mind that they cannot always count on
the earnings a former employee receives from new employment re-ducing
their damages. n
Hendrik Nieuwland is a partner at Shields O’Donnell MacKillop
LLP in Toronto. This article was written with assistance from Seth
Holland, an articling student at Shields O’Donnell MacKillop LLP.
AS A RESULT OF BRAKE, A
EMPLOYEE MAY BE PLACED IN
A BETTER POSITION THAN THEY
WOULD HAVE BEEN IN HAD THE
EMPLOYER COMPLIED WITH
THE EMPLOYMENT CONTRACT.
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40 ❚ OCTOBER 2017 ❚ HR PROFESSIONAL