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Wrongful Dismissal Assumptions Altered By Ontario Court Of Appeal

A fundamental principle of wrongful dismissal damages holds that damages compensate employees for their actual economic loss. For example, an employee awarded 20 months' pay after being wrongfully dismissed is only entitled to recover the income they have lost during those 20 months. Consequently, if that employee finds work after 10 months, they will only receive the income they lost during the 10 months they were looking for a job, not for the full 20 months.

If the employee's new job pays $10,000 per year less than they would have earned from the employer who wrongfully dismissed them, the employee receives

  • their full lost income for the 10 months they were unemployed and
  • the $10,000 difference in pay for the remaining 10 months

However, a recent Ontario Court of Appeal decision is challenging this principle.

B's Wrongful Dismissal

An employee, B, started working at a McDonald's restaurant in Newfoundland in 1986, and upon her later move to Ottawa continued working for McDonald's, eventually in a managerial position.

McDonald's reviewed her work very favourably for many years. Suddenly, B received a series of critical performance evaluations from 2010 to 2012. In 2012, McDonald's management offered her a choice: demotion, under which she would report to employees she had trained and supervised, or dismissal. B refused to be demoted and walked out, never to return.

While working at McDonald's, B had worked part-time at Sobeys. She increased her hours at Sobeys after her termination from employment. B also found employment at Home Depot in a non-managerial cashier position after McDonald's dismissed her. B brought an action against McDonald's for wrongful dismissal.

The Court Decides New Income Earned Need Not Be Deducted From A Damage Award

At trial, the Ontario Superior Court held B was wrongfully dismissed and awarded B $104,500 for 20 months of wrongful dismissal damages. The Ontario Court of Appeal upheld the lower court's decision. However, the court had to decide whether her income from working at Sobey's and Home Depot should be deducted from the damage award.

The courts did not deduct B's income from Sobey's and Home Depot from the damages, although this was established judicial practice. The courts held that

  • B had been working at Sobey's before the wrongful dismissal and thus it was not new employment that was a "substitute" for her work at McDonald's, and should not be deducted from the damage award
  • B's work at Home Depot in a cashier position was so "substantially inferior" to her previous position that it did not diminish the loss of her job at McDonald's 

The courts concluded that income from the new position does not have to be deducted if an employee's new work after a wrongful dismissal is "substantially inferior" to the position they held when wrongfully dismissed.

This case confirms that a wrongfully dismissed employee must try to mitigate their economic loss and their damages. However, it also recognizes that a wrongfully dismissed employee may be forced by their circumstances to accept a much inferior position compared to the one they were dismissed from. The income the wrongfully dismissed employee earns working at such a position is not necessarily deductible from the damage award.

Wrongfully dismissed employees may be concerned about mitigating their damages by taking a lower paid position after dismissal. If you believe that you are in this situation, consult an experienced employment law lawyer to discuss your potential entitlement to damages and the potential impact of mitigation.

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