Fixed-Term Contract Damages: How is Mitigation Income Treated?

The appellate courts have yet to provide a definitive and consistent answer as to whether an employee is under a duty to mitigate their losses upon the termination of a fixed-term contract. For instance, the Ontario Court of Appeal (“ONCA”) has recently held that damages for early termination of a fixed-term employment contract are not subject to mitigation, unless the employment contract expressly provides otherwise. In 2020, both the British Columbia Court of Appeal (“BCCA”) and the Saskatchewan Court of Appeal (“SKCA”) were given an opportunity to address this issue, however, neither court reached the same conclusion as the ONCA.

In Quach v. Mitrux Services Ltd., BCCA 2020 25, the employment contract at issue contained an early termination clause that entitled the employee to payment of the entire term of the contract upon termination. Therefore, even though the employee mitigated, they were still entitled to the full payment. However, the BCCA overturned the trial judge’s award, finding that the trial judge based the award of aggravated damages in part on the devastation suffered by the employee when dismissed. The evidence, however, showed that the employee quickly recovered from the loss of his position and quickly found new employment, thereby mitigating his damages.

Further, in Crook v. Duxbury, SKCA 2020 43, the Saskatchewan Court found that damages were to be reduced for an employee who mitigated their loss by quickly finding alternative employment after the termination of her fixed-term contract. Although Ms. Duxbury did not have an obligation to mitigate her loss, the appellate court found that since she did, the amount from her new employment is to be reduced when calculating her damages.

Therefore, while both the BCCA and SKCA held that income earned after termination is properly deducted from fixed-term contract damages, neither court took the opportunity to shed light on whether or not this implies a “duty” to proactively mitigate their damages. In Ontario, it seems such mitigating income is not deducted, however, outside of Ontario, the answer appears to be quite different. Will it be left to the Supreme Court of Canada to provide some clarity on this issue? Only time will tell.

What does this mean for Employers in Ontario?

For Ontario employers, it is advisable to have a risk-mitigating approach. This would entail including in any fixed-term contracts, clear and express language holding the terms of the employment relationship subject to the principles of mitigation, so as to protect the employer against avoidable damages should the employment relationship end before the intended duration. Although the appellate courts across Canada remain unclear on whether a duty to mitigate on fixed-term contracts exists, proactive steps on the part of the employer and their employment counsel should be taken to avoid this issue from arising.