Terminated employees have a duty to mitigate their damages by looking for and accepting new employment.
That duty was put under the microscope in a fascinating case involving a Scotiabank manager who was fired without cause and given a package. When she hired counsel and sued months later, she was offered her job back at the bank.
But she rejected that offer and negotiated her return, a prolonged process that saw her off the job for about 32 months.
It also led an adjudicator to say that this failure to mitigate, had it been allowed, would have meant than any dismissed employee could refuse a job with restrictions on severance pay and make a “mockery of the duty to mitigate.”
What happened?
The woman held the position of manager business operations, digital channels at the bank. On Jan. 26, 2018, she was dismissed without cause — though the bank did say it had concerns about her performance.
It offered her a package that included continuance of her salary and benefits for 10 months, through Nov. 9, 2018. She rejected the severance package, but Scotiabank continued to pay her salary and benefits continuance during that period anyway.
On Sept. 21, 2018, after the worker filed a complaint under the Canada Labour Code and retained counsel, Scotiabank offered to reinstate her to her old position, effective Nov. 1, 2018. That led to some settlement negotiations between counsel and she didn’t return to her job until July 19, 2021. (A position she still holds, according to court documents.)
But Scotiabank and the worker could not agree on what remedy, if any, to which she was entitled as a result of the termination and rehiring.
Compensation
When she was let go, she had an annual salary of about $70,000 and was eligible to receive payments under the annual incentive plan (AIP). In past years, she had received anywhere from $3,200 to $7,400. She also participated in the pension plan and was eligible to take part in the employee share ownership plan.
The worker sought compensation for the time between Nov. 9, 2018, and July 19, 2021, for lost income, lost salary increases, non-pecuniary damages, interest, lost pension plan contributions and legal fees.
The bank said that, had she promptly accepted the offer of reinstatement on Nov. 1, 2018, she would not have suffered any losses. Her unreasonable failure to mitigate her loss disqualified her from compensation.
The worker countered that she had acted reasonably in rejecting the offer because it would have reduced her right to severance pay in the event of any future termination of employment and since it failed to respect her rights under the Canada Labour Code or at common law.
Did she mitigate her damages?
The principal question before the adjudicator was mitigation.
Some 32 months passed between the time Scotiabank offered to reinstate her and the time she actually returned to the job.
One of the reasons she was reluctant was because the offer was a return to work “without seniority,” to use her counsel’s language. The following paragraphs were included in Scotiabank’s reinstatement proposal:
(Her) original hire date of October 2, 2006 shall be recognized for continuous employment only for the purposes of vacation, ESOP, pension and benefits entitlement.
In light of paragraph 1 above, should a severance be considered for (her) in the future, the Bank will calculate her severance package entitlement based on service as of November 1, 2018. To be clear, for the purposes of notice, length of service will begin from the start of this most recent period of employment and her prior service with the Bank will not be considered.
She argued this restriction would had adversely affected her compensation for wrongful dismissal at common law since length of notice is a major factor in that calculation.
Release
The offer also required her to sign a release of any actual or future claims against the bank. Here’s what it stated:
This Release shall operate conclusively as an estoppel in the event of any claim, action, complaint or proceeding which might be brought in the future by me with respect to the matters covered by this Release. This Release may be pleaded in the event any such claim, action, complaint or proceeding is brought, as a complete defence and reply, and may be relied upon in any proceeding to dismiss the claim, action, complaint or proceeding on a summary basis and no objection will be raised by me in any subsequent action that the other parties in the subsequent action were not privy to formation of this Release.
AND FOR THE SAID CONSIDERATION I covenant and undertake that I will not file any complaint for unjust dismissal, termination or severance pay, overtime or vacation pay or make any other claim against the Bank pursuant to the Canada Labour Code or any other employment standards legislation.
I FURTHER ACKNOWLEDGE that I have received all payments and amounts owing to me by the Bank under the Canada Labour Code and any other employment standards legislation and that the payments made to me herein are in full and final satisfaction of any further entitlements I may have pursuant to the Canada Labour Code and any other employment standards legislation.
I HEREBY AGREE that in the event I should file any complaint with any legislative body with respect to the cessation of my employment with the Bank contemplated hereunder, I will immediately reimburse the Bank for any and all consideration provided pursuant to this settlement.
It also stated that she would release the bank from any liability under the Canadian Human Rights Act.
Provision to limit severance reasonable: Scotiabank
Scotiabank said it was reasonable to limit future severance with a new hire date because she had already received a reasonable severance amount for her initial dismissal.
“If she were to be reinstated with the entirety of her service recognized and then dismissed in the future, she would effectively be receiving severance twice and placed in a better position than other employees,” it said.
The worker, for her part, argued she should be made whole — and that she was simply resuming employment from which she was unjustly dismissed.
Since she was entitled to receive her salary for the entire period following the unjust dismissal, it was wrong to view the income she received after Jan. 16, 2018, as a “severance payment,” her counsel argued.
The ruling
The adjudicator said it was “quite unreasonable” for the worker to expect to be fully paid for 32 months when the only reason given for her delay in returning was a disagreement about the amount of severance pay she would be entitled to in the event of some future termination.
The claim for lost income and benefits amounted to more than $200,000. The reduction in severance pay, in the event there would be a future termination, would be equal to 11 months’ pay — or about $64,000.
“I received no explanation as to why the complainant delayed for 32 months before finally returning to work in July 2021. I am thus left to wonder why she could not have returned sooner and thereby substantially reduced the extent of her lost income and benefits,” it said.
It also had serious doubts about whether the compensation she would have received, if she were to be let go again, would have been “less advantageous… than what she previously enjoyed.”
There was nothing filed with respect to the severance package, and it wasn’t covered off in policy like the annual incentive plan or employee share ownership plan, it said.
“Was it the subject of an express term of a written contract of employment? Was it merely a gratuitous or discretionary payment by the respondent? To which categories of termination of employment did it apply? Certainly there was nothing filed with me by either party to explain the features of this “severance package” or its status, if any, as a right of the complainant under her contract of employment,” the adjudicator said.
It also cast doubt on the entire notion of her new hire date being an issue because of the impact is has on mitgation for all employees
“If the complainant were correct in this argument, every dismissed employee could claim that this difference made it reasonable to reject taking any job with any new employer, thereby making a mockery of the duty to mitigate,” it said.
It ruled she had failed to mitigate her losses.
For more information, see Lopez v Bank of Nova Scotia, 2022 CanLII 44736 (CA LA)
