Rushing to Judgment: How to Reconcile the Duty to Mitigate with Summary Judgment in Wrongful Dismissal Cases

How should the court account for a plaintiff’s duty to mitigate his damages following termination from employment, when summary judgment can be awarded before the expiry of the reasonable notice period?

More to the point, how can an employer ensure that the dismissed employee will take all reasonable steps to mitigate his damages if that dismissed employee is already in receipt of his pay in lieu of notice?

In the case of Markoulakis v SNC-Lavalin Inc., 2015 ONSC 1081 (released April 16, 2015), the Honourable Justice Andra Pollak held that the use of the “Trust Approach” previously approved by the Court of Appeal for Ontario in Cronk v. Canadian General Insurance Co. (1995), 25 OR (3d) 505 (CA) is no longer appropriate, given the decision of the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7.

Facts

In this case, the Plaintiff, Eftihios Markoulakis ("Mr. Markoulakis"), requested summary judgment of his claim for wrongful dismissal. He had been employed for 40.66 years by the Defendant, SNC-Lavalin Inc., at the time of his termination of employment which was the result of a shortage of work. He was earning $129,272 annually as a Senior Civil Engineer and was 65 years old. In lieu of reasonable notice, the Defendant paid an amount approximately equivalent to 34 weeks compensation, the statutory minimum amount.

The Plaintiff argued that he should have been paid 30 months' compensation. The Defendant replied that the amount paid (equivalent to 34 weeks of compensation) was within the "reasonable range" of payment in lieu of reasonable notice of termination of employment.

Of particular note to this post is that notwithstanding the fact that the motion took three days in court to hear, over a period of three months (November 14, 2014, December 17, 2014, February 6, 2015), only 34 weeks had elapsed since the Plaintiff’s termination of employment by the time the motion for summary judgment was heard.

The Issue and the Positions of the Parties

The issue that the Honourable Justice Andra Pollak was asked to resolve was: How should the court account for the Plaintiff’s duty to mitigate his damages, given that the notice period had not yet expired? For those unfamiliar with the duty to mitigate one’s damages, the issue created by the Plaintiff’s rush to judgment was that the Plaintiff was obliged to mitigate his damages following termination and that any income earned during the reasonable notice period must be deducted from any award of damages. (More on the subject of the duty to mitigate one’s damages can be found in this post: Explaining the Duty to Mitigate.)

As noted by Justice Pollak in her reasons for decision:

The jurisprudence relied on by the parties demonstrates that when considering how to award damages before the expiry of the period of reasonable notice, courts in Ontario have applied the following three strategies:

(i) The Trust Approach: the Plaintiff must account for any mitigation earnings and a procedure is designed for potential for a return to Court in the event of disputes;

(ii) The Partial Summary Judgment Approach: the parties return at the end of the notice period to determine the adequacy and success of the Plaintiff's mitigation efforts;

(iii) The Contingency Approach: the Plaintiff's damages are reduced by a contingency for re-employment.

The Plaintiff argued that the Trust Approach was the appropriate means by which to resolve the issue.

For its part, the Defendant argued that an award to compensate the Plaintiff for more than 34 weeks would have the practical effect of removing the Plaintiff's obligation to mitigate his damages; the Plaintiff would already have the cash in hand. Although the Defendant agreed that a summary judgment motion was an appropriate means by which to resolve the determination of the period of reasonable notice, it submitted that any such motion should not have been brought until the end of the notice period being claimed by Mr. Markoulakis. The defendant employer therefore argued that the motion should have been adjourned until the end of the notice period to avoid an unfair resolution of this dispute.

The Defendant argued that the Trust Approach is inconsistent with the principles of judicial economy and fairness. Specifically, the Defendant argued that if the Court awards the maximum amount of damages that the Plaintiff could receive, the Defendant may be forced to return to court to recover any overpayment. Requiring the Defendant to recover any overpayment through subsequent negotiations or further litigation is not fair to the Defendant, SNC-Lavalin argued. Further, the Defendant argued that the Trust Approach may negatively affect the Plaintiff's motivation to mitigate his damages. The Defendant stated that this “motivational problem” is of particular concern in the instant case, as the Plaintiff believed that he will not succeed in finding new employment.

Thus the Defendant submitted that the only fair manner of proceeding was to wait until damages have crystallized at the end of the notice period claimed. Such an approach would allow for an accurate assessment of the Plaintiff’s damages and would allow the Defendant to test the reasonableness of the Plaintiff’s mitigation efforts, if necessary.

Decision

On the issue of the amount of reasonable notice to be awarded, Justice Pollak found that the reasonable notice period was 27 months, which amount was not to be reduced to account for the fact that the employer had previously told the employee that his employment would be terminated.

In reaching her decision as to how to deal with the quagmire of fairness, i.e. either the defendant is ordered to pay the full amount of the judgment now and risks overpaying or the plaintiff is forced to wait – without any income – until the expiration of what he says is the reasonable notice period, Justice Pollak turned to the decision of the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, and noted the following:

[24] Applying the Hryniak roadmap, I must therefore consider:

(i) whether, on the basis of the evidentiary record alone, there genuine issues that require a trial; and

(ii) whether the evidentiary record is sufficient to "fairly and justly adjudicate the dispute.”

[25] In this action, the evidence is largely uncontradictory and there are not many issues in dispute. In my view, the answer to both these questions is yes, with the exception of the issue regarding the Defendant's right to test the Plaintiff’s fulfillment of his obligation to mitigate his damages throughout the period over which he should have been given reasonable notice of termination of employment. The exercise of my fact-finding powers will not resolve this issue.

Therefore in resolving the issue of how to approach the fact that the Plaintiff had not yet suffered any economic loss (he had received sufficient pay in lieu of notice plus statutory severance to ‘cover him’ for the full length of time that the case took to hear and resolve), Justice Pollak held as follows:

[38] With respect to the issue of the Plaintiff’s continuing duty to mitigate, I have found that the evidentiary record does not allow this Court to make a finding on whether the Plaintiff will have any employment income loss during the balance of the notice period or whether he will successfully mitigate. Even though the Plaintiff has shown that he has not been able to find employment for thirty-four weeks, he moved for summary judgment knowing that it would be heard only 34 weeks after his termination of employment. The Plaintiff chose to deal with this issue by submitting that the Court should make a finding that he would not be able to mitigate his damages during the balance of the notice period. For the reasons set out above, the Court has declined to make this finding.

[39] In the circumstances of this case, the Plaintiff has not yet lost any employment income.

[40] The Court has determined that the reasonable notice period for Mr. Markoulakis is 27 months. It follows that the Defendant has the obligation to the Plaintiff to pay the agreed upon compensation monthly for the balance of such notice period. This obligation of the Defendant to pay is subject to the Plaintiff's obligation to mitigate his damages and to a deduction in the monthly payments by the Defendant for any earnings from employment or a business. If during the balance of the notice period, the Defendant challenges the mitigation efforts or earnings of the Plaintiff and does not make such payments to the Plaintiff, the parties may deal with this dispute either on a motion for summary judgment, or by way of a trial of an issue.

[41] I am of the opinion that in this case, this determination with respect to the amount of notice period is the best way to ensure a fair and expeditious resolution of the dispute between the parties. The employee’s right to a determination of the appropriate period of reasonable notice has been satisfied and the employer’s right to challenge the employee’s mitigation efforts has been preserved. As the parties know what their obligations are, the likelihood of the need for further court proceedings is minimized.

[42] The Supreme Court directed in Hryniak that: “Where a motion judge dismisses a motion for summary judgment, in the absence of compelling reasons to the contrary, she should also seize herself of the matter as the trial judge.” In my view, if further proceedings are required, this is an appropriate case for me to do so, but only if it is possible to do without delaying the hearing of the proceeding. I will therefore, subject to the practical requirements of motion and trial scheduling, hear any further motion for summary judgment or a trial of an issue with respect to the employer’s obligation to make payments to the Plaintiff during the balance of the period of reasonable notice.

In the result, the Plaintiff received the right to continue to receive his salary for a period of 27 months and the Defendant retained to right to return before Justice Pollak should it wish to challenge the Plaintiff’s efforts to find new work.

Commentary

It would appear the Justice Pollak employed a type of Partial Summary Judgment approach. Rather than direct the parties to return in order to address the issue of the adequacy of the Plaintiff’s mitigation efforts, the court granted permission to the Defendant to do so, but only if necessary.

Is important to note that while the Trust Approach was expressly approved by the Court of Appeal for Ontario in the case of Cronk v. Canadian General Insurance Co. (1995), 25 OR (3d) 505 (CA), such an approach has appeared to have fallen into disapproval more recently (see e.g.: Russo v. Kerr, 2010 ONSC 6053.)

The case touches upon three important considerations for anyone considering a case for wrongful dismissal:

1. The use of summary judgment in wrongful dismissal cases;
2. The duty to mitigate; and
3. The method by which pay in lieu of notice is to be paid.

With respect to the issue of the appropriateness of using summary judgment motions as a means by which to resolve wrongful dismissal cases, it is heartening to see the court continue to employ such a method notwithstanding the fact that the issue of the plaintiff’s duty to mitigate his damages remained outstanding.

With respect to the duty to mitigate, this blog has already canvassed that issue at considerable length in the post Explaining the Duty to Mitigate. That post is very much in line with Justice Pollak’s expression of the duty and nothing more will be added to the subject here.

With respect to the method by which damages for wrongful dismissal are to be awarded, it is important to note that Justice Pollak did not order SNC-Lavalin to pay Mr. Markoulakis a lump sum. Rather, such payments were to be made as a continuation of his salary.

In the post Do I Have to Accept Salary Continuance as Part of my Severance Package? this blog looked at the issue of salary continuance versus lump sum payments. As noted in that post:

The answer to the question "can an employer legally require an employee who has been dismissed to accept salary continuance?" is sometimes "no" because neither the Ontario Employment Standards Act, 2000 nor the common law really envision such a thing.

Section 61(1) of Ontario's Employment Standards Act, 2000 provides that:

An employer may terminate the employment of an employee without notice or with less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination pay in a lump sum equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section; and

(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.

Therefore, for payments of statutory termination pay, which are the minimum amounts prescribed by the ESA, if an employer is going to provide an employee with pay in lieu of notice, then the legal requirement is that those payments must be provided in a lump sum.

Even though salary continuance is not a legal mechanism for the payment of statutory termination pay, and even though judges will often not order it as a remedy in a wrongful dismissal case, that does not necessarily mean that (a) salary continuance is never 'legal' or (b) employees may not have to accept it.

For amounts in excess of statutory minimums, if the employer agrees to pay the employee reasonable notice and continue benefit contributions for an equivalent period of time, then the employee has no losses or damages, and therefore may be required to accept salary continuance. The key point is that the amount to be paid via salary continuance must be at least the reasonable amount of notice to which the employee is entitled. If the amount is less than reasonable, then it is immaterial whether the same will be paid via salary continuance or lump sum.

Thus, sometimes an agreement to receive salary continuance will have to be accepted. Sometimes accepting a salary continuance package makes economic sense; especially if the agreement includes other arrangements, such as a "half back" arrangement. Sometimes, however, the package is just a 'raw deal.'

The fact that the court may sometimes require an employee to receive his pay in lieu of notice as a continuation of salary, as happened in the Markoulakis case, highlights an important takeaway for employees.

Takeaways for Employees with Labour Pains

There are two takeaways from the Markoulakis case for employees: First, summary judgment remains a powerful tool by which to resolve one’s dispute over the amount of reasonable notice to which a dismissed employee is employed. Second, sometimes it may be prudent to accept a lump sum amount of money as compared to pushing for a larger amount of money by way of a case for wrongful dismissal.

On the second point, note that in this case Mr. Markoulakis really had no choice. If he wanted more than 34 weeks of pay in lieu of notice he was going to have to sue – and he did rather successfully. However, in some cases employers will offer dismissed employees a lump sum amount at the time of dismissal. In those cases, employees would be prudent to seek professional legal advice as to the implications of attempting to seek more money. As the Markoulakis demonstrates, where employees do push back to receive more money, between the use of a salary continuance structure and the duty to mitigate one’s damages, an employee can actually receive less money than he otherwise would have received had he accepted the lump sum amount, even if the court agrees that the notice period should be longer.

Takeaways for Employers with Labour Pains

The takeaway for employers is that it always pays to consider how to structure an employee’s severance package. While one can appreciate the desire to resolve all issues ‘once and for all’, given the duty imposed upon employees to ‘mitigate their damages’, it may be appropriate to consider structuring such a package as a continuation of salary.

Getting a severance package ‘right’, such that employers can avoid the costs and distractions of a wrongful dismissal lawsuit can be difficult.

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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.