After termination, employees have an obligation to act in their best interests. In many situations, this includes the requirement to seek alternative employment and mitigate their loss. The principle is of benefit to employers, since the Courts will deduct income earned in mitigation from damages in lieu of notice. Severance agreements will often reflect this principle in some respect. Mitigation can have a significant impact on an employer’s liability arising from termination. The issue raises many questions.
What is expected of employees in their mitigation efforts? If an employee does not look for work, should they still get damages in lieu of notice? What can an employer do about it? Can damages be reduced if the employee did not act reasonably? These are questions the Court of Appeal addressed in Steinebach v. Clean Energy Compression Corp., 2016 BCCA 112.
Mr. Steinebach was a sales person for a natural gas fueling company until he was dismissed. In the month following termination he began to search for new jobs in the natural gas industry. At the same time he also pursued a potential career in financial services. After approximately one month he ceased searching in the natural gas industry and solely pursued a career in financial services. He found a financial services job approximately six months later.
The burden is on the employer to demonstrate that the employee failed to mitigate by acting reasonably. Courts typically require substantial evidence such as a good offer rejected by an employee or dilatory behaviour. In this case, however, the employee described his search as “very passive.” The company also said Mr. Steinebach ought to have looked for work in natural gas. Mr. Steinebach admitted he been “very single-minded about looking at what it will take … to get established in the financial management field”. Mr. Steinebach also acknowledged that he had been spending about three hours per day on financial course studies and the remainder of the day devoted to home-schooling his child. He acknowledged that, “…I’m not working my contacts, so to speak, I’m not calling people and pushing buttons.”
At trial the Judge found that Mr. Steinbach had failed to reasonably mitigate and that he “failed to pursue available opportunities that fell within his skill and experience”, he “placed a greater emphasis on his personal preferences and career objectives than was reasonable in all of the circumstances” and “if he had done more he would likely have achieved greater success in finding employment in the industry that he had spent the major part of his working life”.
The Court of Appeal did not overturn the trial judge’s determination on failure to mitigate. However, it had a challenge with how it affected damages. To the consternation of both parties, the matter was sent back to trial because there was no evidence about when Mr. Steinebach may have found appropriate alternative employment had he conducted a more focused job search. The case demonstrates the compounded challenge for employers to establish a failure to mitigate and then to prove how much, if any, damages should be reduced.
Employers face an increasingly heavy burden in litigation when faced with employees who are not diligent in their job search. Employers will probably benefit more from negotiated settlements which account for a reduction, or even an incentive for finding new employment. In Court, while an employee’s change in career or pursuit of a job is a part-time exercise may result in a reduction of severance owed, demonstrating the reduction will be difficult.
CSA publishes Client Focused Reforms: Amendments to NI 31-103
The Canadian Securities Administrators (CSA) recently released finalized amendments (the Amendments) to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations.