Employee’s Mitigation Efforts Under Fixed-Term Contract Reduces Employer’s Liability

Daniel Standing LL.B., Editor, First Reference Inc.

What is the employer’s liability to a former employee who is dismissed from a fixed-term contract without cause, when that employee mitigates his or her loss by finding another job? Faced with mixed jurisprudence from other jurisdictions, the Saskatchewan Court of Appeal answers this question for that province in Crook v Druxbury, 2020 SKCA 43 (CanLII), rendering a decision that is harmonious with the state of the law in Alberta and British Columbia. As a result, in those three Western provinces, the former employee’s mitigation of his or her loss serves to reduce the financial liability of their former employer for the balance of the period of the fixed-term contract.

Background facts

The plaintiff, Kerri Duxbury, is a Chartered Professional Accountant. She had been working as Comptroller for a company when she was approached by Donald Crook about working for him at D. B. Crook Accounting CPA Prof Corp (“Crook Accounting”) in Moose Jaw, Saskatchewan. The parties negotiated an employment agreement, effective March 1, 2016, with a fixed term of two years and successive one-year renewal terms. The agreement provided for four weeks’ paid vacation. However, it failed to specify Ms. Duxbury’s duties and responsibilities. In addition to the employment agreement, the parties signed a letter of intent for the purchase of the assets of Crook Accounting. In it, the parties committed to finalizing the transaction in March 2018 while making it clear that neither party had entered a “binding commitment” to do so.

Ms. Duxbury left her previous position and began working at Crook Accounting in March 2016. She worked there until her employment was terminated for cause in January 2017. She accepted a different position elsewhere on June 5, 2017, well before her prior fixed-term contract would have expired on February 28, 2018.

Judicial history

The matter came before the Saskatchewan Court of Appeal by way of an appeal from a decision in a summary judgment application brought by Ms. Duxbury in respect of her claim against four named defendants (including Mr. Crook and his wife, Sharon Toews) for wrongful dismissal under a fixed-term contract. At first instance, the Chambers judge’s decision canvassed six issues: just cause, damages, punitive damages, moving costs to relocate, payment in lieu of benefits and vacation pay.

First, she found that there was no evidence of just cause for termination. The employer provided no warning of a failure to meet expectations and no warning of dismissal. There was no evidence of a gross deficiency that would justify a termination without warning.

As for the quantification of damages, the judge summarized the parties’ positions. The employer presented cases from Saskatchewan and British Columbia (Park and Neilson, respectively) which it argued showed that even though there is no requirement to do so, if an employee under a fixed-term contract has mitigated their damages, it should serve to reduce the damages payable under the contract, unless the contract says otherwise. Ms. Duxbury presented other authorities from the Ontario Court of Appeal (Bowes and Howard) in support of her argument that damages under a fixed-term employment contract are never subject to mitigation. The Chambers judge sided with Ms. Duxbury, holding that her fixed term contract was not subject to mitigation and any earnings from her new employment were irrelevant to a calculation of her damages. She therefore awarded damages for the loss of employment benefits over the remainder of the contract, as well as a sum to offset the moving costs incurred in seeking new employment. She declined to award vacation pay since the contract was silent on the point and it was assumed to be included in the plaintiff’s salary.

The Court of Appeal’s decision

The Court of Appeal first dealt with the issue of just cause, and the employer’s argument that the court below had erred in failing to appreciate that the letter of intent formed part of the employment relationship and reflected the expectation that Ms. Duxbury act like an owner. If this was the case, it was argued, then Ms. Duxbury’s attendance issues, work outside of the practice, use of vacation time and overall incompetence would have been seen as just cause. The Court of Appeal rejected this argument. It interpreted the Chambers judge’s decision as finding the letter of intent as a standalone document apart from the employment contract; it could find no error in her interpretation of the contractual relationship between the parties, nor in her reasoning about the liability issue in other regards.

As to damages, the appellants claimed that the judge erred in law when she ruled that it was irrelevant whether Ms. Duxbury mitigated her damages. They also said the judge should not have awarded moving expenses, which were incurred in her mitigation efforts. On this issue, the parties once again diverged. The appellants acknowledged that the early termination of a fixed-term contract (under an early termination clause) gives rise to a debt owing to the plaintiff, and therefore mitigation is not appropriate since there are no damages. They argued that where such a contract is silent on early termination and does not give rise to a debt, a plaintiff’s damages are mitigatable even though there is no duty to mitigate. Ms. Duxbury claimed that the current law reflected that mitigation does not affect the assessment of damages under any fixed-term employment contract. She argued that even where the parties did not include a specific early termination or pay-in-lieu-of-notice clause, the employee would still be entitled to receive all amounts owing under the remainder of the term of the contract if they are dismissed early without cause.

Since the Chambers judge’s decision on this point contradicted that in Park, which was a decision of the Saskatchewan Court of Queen’s Bench, the Court of Appeal examined whether the “traditional approach” in Saskatchewan had changed since Park, in light of the Howard and Mohamed CA decisions from the Ontario Court of Appeal.

At the Court of Appeal, both parties agreed that there is no duty on an employee to mitigate loss or damage resulting from early termination under a fixed-term contract, unless the contract says otherwise. The point of disagreement was about what happens when an employee successfully mitigates, even though they have no duty to do so.

To resolve this issue, the Court first scrutinized the Howard decision. It concluded that it was unable to read Howard as definitively standing for the proposition that when an employee has actually mitigated their loss, mitigation is not to be taken into account in the assessment of damages. In similar fashion, the Court concluded that the Mohamed CA decision, while clear on the lack of a duty to mitigate under a fixed-term contract, did not clearly express an answer to the question at issue in the present appeal.

Next, the Court of Appeal noted that the Neilson appellate decision continues to be the leading authority on mitigation under a fixed-term contract in British Columbia, where damages pursuant to a fixed-term contract remain subject to mitigation unless the contract says otherwise. This position is also followed in Alberta and is the historical situation in Saskatchewan. The Court could find no basis in Howard or Mohamed CA that supported the Chambers judge’s departure from Saskatchewan’s jurisprudence which holds that wrongful dismissal is treated as an action for breach of contract. As such, it is subject to the general law of damages, where recovery is limited to the actual loss. Consequently, the Chambers judge committed an error by not reducing the damages to account for Ms. Duxbury’s earnings from her new employment between June 5, 2017, and February 28, 2018. Given that finding, the moving expenses could also properly be accounted for.

The last issue the court dealt with was that of privity of contract. In this case, there were multiple named defendants, including Mr. Crook, his spouse Ms. Toews, who was also a co-owner of the business and the corporate appellants. The appellants argued that since the employment agreement and letter of intent were signed between the corporate appellants and Ms. Duxbury, privity of contract should have prevented the Chambers judge from rendering judgment against all four defendants. Although this was a new issue presented on appeal, the Court of Appeal addressed it anyway, stating that it did not interpret the Chambers judge’s reasons as holding Mr. Crooks and Ms. Toews personally liable for constructive dismissal.

In the end, the appeal was allowed in part, and the damage award was varied such that the corporate appellants were jointly and severally liable to pay Ms. Duxbury the sum of $142,060.25, plus pre-judgment interest.

Takeaways for employers

This case clarifies the law, at least in Saskatchewan, about a former employer’s liability in the case of a termination of a fixed-term contract when the employee goes on to mitigate his or her loss. Unless the contract specifies otherwise, the mitigation is to be accounted for and serves to reduce the overall liability of the employer for the balance of the contract term.

Until the Supreme Court of Canada weighs in on the issue, it remains somewhat uncertain whether this is the law in other Canadian jurisdictions. However, in Western Canada, the balance of authority appears to be on side with the Saskatchewan Court of Appeal. In the meantime, employers would do well to ensure that their legal advisors review their fixed-term contracts to avoid being exposed to unanticipated liabilities.