Tuesday, 23 May 2017

Court of Appeal Rules that Modest Earnings Earned during Notice Period Not to be Deducted from Wrongful Dismissal Damages

(c) istock/OlafSpeier

What happens when an employee takes a new job not so much to mitigate her damages, but rather to survive? More to the point, what if that new position is so much beneath the wrongfully dismissed employee’s previous position that to deduct such earnings would work a disservice to the employee?

In the case of Brake v PJ-M2R Restaurant Inc., 2016 ONSC 1795 (CanLII), the Honourable Justice Kevin B. Phillips of the Ontario Superior Court of Justice held that a wrongfully dismissed employee’s ability to find employment did not take away from the loss she suffered from being dismissed without cause. Moreover, her new position, that of a cashier, was so substantially inferior to the managerial position she held with the defendant that, “the former does not diminish the loss of the latter.” As a result no deduction was applied on account of the mitigatory earnings.

I blogged about the trial decision in my post Trial Judge Finds Mitigatory Earnings too Insignificant to be Deducted from Wrongful Dismissal Award .

On May 23, 2017, the Court of Appeal for Ontario released its reasons for decision in respect of the appeal of that case: Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402.

Facts

The facts of the case are as set out in my previous post.

The case concerned Esther Brake, who worked for McDonald’s restaurants for more than 25 years. A substantial part of that career was spent in the employ of the defendant, PJ-M2R Restaurant Inc., a McDonald’s franchise holding company with several restaurants in Ottawa.

On August 2, 2012, PJ-M2R terminated Ms. Brake’s employment.

Ms. Brake claimed that she was wrongfully constructively dismissed and sought damages for common law notice plus severance pay in accordance with the Employment Standards Act, 2000 (“ESA”). The defendant employer responded that it had every right to terminate her employment since, despite considerable effort to assist her in meeting the standards expected of her position, she simply failed to do so and had to be let go.

Following the trial of the case, the trial judge made the following findings of fact:

  • Esther Brake began working for McDonald’s restaurants in 1986 in Corner Brook, Newfoundland. In 1999, she moved to Ottawa and began working for the Defendant. In recognition of her experience and the associated value that she was bringing with her to PJ-M2R, she was accepted into the PJ-M2R milieu as if already having 7 years of full-time service to that entity. I find that as of August 3, 3012, Ms. Brake had the equivalent of 20 years employment history with the Defendant.
  • From 1999 to 2004, Ms. Brake worked for PJ-M2R in a variety of capacities. While there were some ups and downs throughout these years, she remained in the Defendant’s full-time employ. Finally, in 2004, Ms. Brake was promoted to the position of store manager with respect to one of PJ-M2R’s McDonald’s locations.
  • In 2008, Ms. Brake was transferred to manage PJ-M2R’s Kanata McDonald’s. As part of her duties there, she also managed a nearby McDonald’s located within a Wal-Mart. Eventually, in November, 2011, Ms. Brake was assigned exclusively to the Wal-Mart location.
  • From 2000 to 2007, Ms. Brake received an overall rating of “excellent” in all of her evaluations.
  • In 2008, Ms. Brake managed Kanata and the Wal-Mart location, and received an excellent review.
  • High overall ratings continued throughout 2009. Esther was rated “excellent+”
  • In 2010, Ms. Brake received an overall “excellent” rating.
  • In November 2011, Ms. Brake received her first negative performance review. The judge accepted her evidence that she was “dumbfounded” and “shocked”. She did not expect this review, and was “blown away”. The court accepted Ms. Brake’s evidence that in all her years of service she never had any indication that her position was in jeopardy or that her performance as a store manager was anything less than excellent. In fact, only one month prior to the November 2011 review, the store’s owner had arranged for Esther to attend a managers’ convention in Niagara Falls.
  • During the November 2011 review, Mr. McKenna told Esther that she would be transferred to the Wal-Mart location. This was presented as an opportunity for her to improve her performance. The Wal-Mart location was significantly smaller with far fewer sales, and consequently had far fewer staff. I accept the evidence of Ms. Brake to the effect that the Wal-Mart location was more difficult to manage. There was high staff turnover and less staffing, which meant that the manager on duty was expected to cook, serve customers and keep the restaurant clean. The Wal-Mart location had been trending badly since at least April 2011. According to McDonald’s corporate documentation, the Wal-Mart location had failed 8 out of 12 customer service opportunities over that year. It ranked 1,410 out of 1,437 restaurants in Canada.
  • That the Wal-Mart location was trending badly was well known to the Defendant. In fact, it was acknowledged that for Ms. Brake to have any success there she would first have to turn the place around. The owner agreed that the Wal-Mart location was struggling. He expected that “someone with Esther’s experience should have been able to turn around a restaurant like that.”
  • On August 2, 2012, Ms. Brake was told by the Defendant that she had failed the Goals Achievement Process (“GAP”) program and that they needed to discuss her future. Ms. Brake argued that she ought to be allowed to stay on as a manager. The owner responded that that was not an option; she had to “take a demotion or go”. Ms. Brake was offered the position of first assistant. The salary would be the same but the benefits would be meaningfully inferior. Moreover, she would be reporting to some of those whom she had trained and supervised, many of whom were much younger and less experienced. On cross examination, the owner agreed that Esther was entitled to be embarrassed by the demotion.
  • Ms. Brake refused to accept the demotion and left never to return. The termination of her employment “for cause” was sent to her in writing soon thereafter.
  • Ms. Brake had long had another job at Sobey’s as a cashier, a fact that was always known to the Defendant. After August 2012 she increased her hours at Sobey’s. In addition, Ms. Brake made other efforts to mitigate her damages. From October 2012 until mid-January 2013, she worked 30-36 hours per week at Tim Horton’s. Her hourly wage was $11.25. I accept Ms. Brake’s testimony that she attempted to start a babysitting service and cleaning service. She made phone calls, put up posters and posted an advertisement for both businesses on Kijiji. I further accept that by January 2013, Ms. Brake realized that the businesses were not working and that she needed to find another source of income. Accordingly, she applied for several positions including as a McDonald’s mystery shopper, store manager and front store supervisor at Shopper’s Drug Mart, overnight supervisor at Home Depot, part-time cashier at IKEA, store manager at Mark’s Work Warehouse, supervisor at Costco, assistant store Manager at Loblaws, store manager at Dollarama and various other positions at Bed, Bath and Beyond, Swiss Chalet, LCBO and Target. Ms. Brake had not been offered a management position with any company since her termination. In March 2013, Ms. Brake accepted a position as a cashier at Home Depot. She works approximately 35-38 hours per week and earns a wage of $12.50 per hour. She continued to work there to at least the trial.

Decision

The decision of the court was authored by the Honourable Justice Eileen E. Gillese. Justice Gillese’s decision provides a lot of helpful guidance with respect to the duty to mitigate. In her reasons for decision, Justice Gillese wrote the following:

[96] An employee who is dismissed without reasonable notice is entitled to damages for breach of contract based on the employment income the employee would have earned during the reasonable notice period, less any amounts received in mitigation of loss during the notice period: Sylvester v. British Columbia, [1997] 2 S.C.R. 315, at paras. 14-17.

[97] While this general statement of principle governs, I would not reduce the damages award by the amounts that Ms. Brake received during the notice period because, in my view, they are not "amounts received in mitigation of loss".

[99] To the extent that the trial judge was suggesting that the court did not need to consider whether income received from a job that was inferior to the one from which the employee was dismissed was mitigation income, I respectfully disagree. That approach does not accord with the principle that employment income earned during the notice period is generally to be treated as mitigation of loss.

[100] Having said that, in my view, the income earned by Ms. Brake during the notice period need not be deducted from the damages award. To explain why, I will consider:

a. the Employment Income ("El") benefits that Ms. Brake received;

b. Ms. Brake's employment income in the statutory entitlement period under the Act; and

c. Ms. Brake's employment income in the balance of the 20-month notice period (the "Balance of the Notice Period").

[109] When Ms. Brake's employment was wrongfully terminated, she was entitled to two types of compensation - termination and severance pay under the [Employment Standards] Act ("statutory entitlements") and common law damages for wrongful dismissal. In her amended Statement of Claim, she claimed for both. At para. 35 of the claim, she states that she had been paid no compensation in lieu of reasonable notice and none of the amounts required by the Act.

[111] Statutory entitlements are not damages. Ms. Brake was entitled to receive her statutory entitlements even if she secured a new full-time job the day after the Appellant terminated her employment. Therefore, the income that Ms. Brake earned during her statutory entitlement period is not subject to deduction as "mitigation income". In reaching this view, I adopt the reasons of the Divisional Court in Boland v. APV Canada Inc. (2005), 250 D.L.R. (4th) 376.

[140] In a wrongful dismissal action, an employer is generally entitled to a deduction for income earned by the dismissed employee from other sources during the common law notice period. However, as Rand J. explained in Karas v. Rowlett, [1944] S.C.R. 1, at p. 8, for income earned by the plaintiff after a breach of contract to be deductible from damages, "the performance in mitigation and that provided or contemplated under the original contract must be mutually exclusive, and the mitigation, in that sense, is a substitute for the other." Therefore, if an employee has committed herself to full-time employment with one employer, but her employment contract permits for simultaneous employment with another employer, and the first employer terminates her without notice, any income from the second employer that she could have earned while continuing with the first is not deductible from her damages.

In a separate, concurring decision, Justice Kathryn N. Feldman gave express effect to Justice Phillips’s decision. On this point, Her Honour wrote the following:

[154] I fully concur with the result reached by Gillese J.A., and with her excellent reasons. However, with respect to the income the respondent earns as a cashier at Home Depot, in my view, the trial judge was entitled to make the following finding:

The cashier position she occupies now at Home Depot is so substantially inferior to the managerial position she held with the Defendant that the former does not diminish the loss of the latter.

[155] It was on that basis that the trial judge declined to deduct the Home Depot income that the respondent earned during the notice period from her damages for wrongful dismissal. I would uphold that decision.

[156] The trial judge found that the respondent made reasonable best efforts to find a managerial position reasonably comparable to the one she held with the appellant. Having been unable to do so, the respondent accepted a non-managerial job as a cashier at a much lower salary, because she needed to earn money.

[157] A wrongfully dismissed employee has a duty to try to mitigate her damages by making reasonable best efforts to obtain a position that is reasonably comparable in salary and responsibility to the one from which she was wrongfully dismissed. If she is able to secure such a position, her earnings are deducted from her damages as mitigation. If she turns down such a position, or fails to make reasonable best efforts, then the amount she could have earned at a comparable position is similarly deducted from her damages, based on a failure to meet the duty to mitigate. But if she can only find a position that is not comparable in either salary or responsibility, she is entitled to turn it down, and if she does, the amount she could have earned is not deducted from her damages.

[158] It follows, in my view, that where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.

[159] It is always up to the trial judge to determine if the employee has met her duty to mitigate. When a wrongfully dismissed employee accepts new employment during the notice period, the question of whether or not to deduct those earnings depends on the trial judge's assessment of mitigation. If the trial judge finds that the new job is comparable to the old one, the earnings should be deducted as mitigation of damages. If the trial judge finds that the new job is vastly inferior to the old one, such that the employee would not be in breach of the duty to mitigate if she turned it down, the earnings should not be deducted.

[160] In other words, the trial judge decides whether a job that an employee takes or turns down, amounts to mitigation of damages. As my colleague states at para. 98, only monies that are received in mitigation of the loss are deducted from the damages award.

[161] In this case, the employee was not an executive who could afford to live during the notice period without a salary. It was in her interest to try to obtain a comparable managerial position but she was not able to do so, and because she could not afford to earn nothing, she had to take the only job she could find. The trial judge determined that the job she found was in no way comparable to her managerial position with the appellant. As a result, it did not have the effect of mitigating the damages she suffered from her wrongful dismissal by the appellant employer and should not be deducted.

In the result the appeal was dismissed with costs of $19,500 awarded to Ms. Brake.

Commentary

In my original post I argued that, in my own personal opinion, I believed that the court erred in failing to deduct the mitigatory earnings. I argued that such earnings should have been deducted from the overall award. I guess I was wrong – at least for now.

Having now had the chance to consider Justice Feldman’s reasons, I must say that I find myself drawn to them, especially that which is provided at paragraph 157, “… if she can only find a position that is not comparable in either salary or responsibility, she is entitled to turn it down, and if she does, the amount she could have earned is not deducted from her damages.” I wrote about that subject in my post The Duty to Mitigate: Employees Not Required to Accept a 'Bird in the Hand'.

On the whole this case is a huge win for employees, especially those outside the executive ranks. Congratulations to Ms. Brake and her legal team.

Takeaways for Employees with Labour Pains

The takeaway for employees with labour pains is that while you have a duty to mitigate your damages and sometimes life will require you to accept any position in order to pay the bills, the court may not always deduct such meager, self-sustaining earnings in your wrongful dismissal case.

If you are an individual looking for assistance with respect to the termination of your employment, contact the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for Employers with Labour Pains

The takeaway for employers is to be careful in how you terminate the employment of your employees. The employer in this case made several costly mistakes. Those could likely have been avoided with prudent legal advice.

If you are an employer and you need to make changes to the terms of your employee’s employment, contact the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP; we would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

To subscribe to Labour Pains enter your email address:

Delivered by FeedBurner

--

As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

No comments:

Post a Comment