Brake v PJ-M2R Restaurant Inc. : The Ontario Court of Appeal Clarifies Mitigation Principles

When an employee makes a claim for common law wrongful dismissal damages, he or she is required to make reasonable efforts to mitigate personal damages. Mitigation often requires the employee to try and attain another job in the period after his or her dismissal. Any income earned within the common law reasonable notice period is typically deducted from the total damages that the employer would otherwise have to pay. If an employee did not make a reasonable attempt to mitigate, the employer’s damages will be reduced by the amount the employee would have reasonably earned, had he or she decided to mitigate.

But what happens when the very employer that dismissed the employee offers them an alternate position within the company? Is the employee obligated to accept it? Furthermore, are all types of income deductible from damages? These questions are at the heart of the Ontario Court of Appeal’s (“ONCA”) decision Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402 [Brake, ONCA].

Background

Esther Brake (the “Plaintiff”) was hired as a restaurant manager in 1999 by PJ-M2R (the “Defendant”), which operated several McDonald’s Restaurant franchises. From 2000 to 2010, the Plaintiff received an overall rating of “Excellent” or better in all of her annual performance evaluations. In addition to her position at McDonald’s, the Plaintiff was also simultaneously employed as a cashier at the grocery chain Sobeys.

In November 2011, the Plaintiff received her first negative performance review and was subsequently transferred to another restaurant location. That particular location was notable for its overall poor performance. Internal documentation showed that this location had been ranked 1,410 out of 1,437 McDonald Restaurants in Canada.

By April 2012, the Plaintiff had garnered another “Needs Improvement” rating. The trial judge noted that the new location’s performance standards were “objectively more difficult than the standards set over the course of Esther’s employment” (Brake v PJ-M2R Restaurant Inc., 2016 ONSC 1795 [Brake, ONSC] at para 4).

By August 2012, the Defendant gave the Plaintiff a choice between a demotion to First Assistant or termination. The new position would offer the same salary of $53,000 per year, but with significantly fewer benefits. Ms. Brake refused the demotion, testifying at trial that she was humiliated by the proposed demotion to First Assistant.  She subsequently commenced legal action against her employer for wrongful dismissal. In an effort to mitigate her damages, the Plaintiff applied for several positions, eventually landing a position as overnight manager at a Home Depot at a wage of $12.50 per hour while continuing her cashier position at Sobeys.

While the case addresses several granular legal issues, two stood out for its practical significance to employers and employees.

For Employees: Where an employer offers an employee a chance to mitigate damages by accepting a different position, are employees obligated to accept?

On appeal, the Defendant argued that the Plaintiff was obliged to accept the demotion to First Assistant. By failing to do so, she “breached her obligation to mitigate her damages and disentitled herself from receiving compensation (Brake, ONCA, para 72).”

The Court disagreed with the Defendant. Drawing upon previous Supreme Court of Canada (“SCC”) jurisprudence, the Court noted:

Where an employer offers an employee a chance to mitigate damages by accepting a different position, the central issue is whether a reasonable person in the employee’s position would have accepted the offer.  This is an objective standard, on which the employer bears the burden of proof (Evans v. Teamsters, Local 31, [2008] 1 SCR 661 [Evans] at para 30).

Elaborating further:

The employee is not obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation.  The non-tangible elements of the situation, including work atmosphere, stigma and loss of dignity, as well as the tangible elements, such as the nature and conditions of employment, must be considered in determining whether the objective standard has been met (Evans, para 35).

At trial, the Plaintiff testified that she was embarrassed and humiliated by the proposed demotion to First Assistant because she would be reporting to people whom she had trained and supervised, and those people were younger and less experienced than she was (Brake, ONCA, para 32). The trial judge also gave credence to testimony provided by witnesses for the position being “downright insulting to Ms. Brake and her personality and abilities” (Brake, ONSC, para 22). On this basis, the Court was satisfied that an objective person would not have accepted the demotion and ruled for the Plaintiff.

For Employers: Can all types of employment income be deductible by the employer as damage mitigation?

On appeal, the Defendant argued that the trial judge failed to reduce their damages by the mitigating income earned by the Plaintiff. The Court analyzed the Plaintiff’s Employment Income (“EI”) benefits, income from Sobeys and income from the Home Depot, dismissing each as a deductible source of mitigating income.

EI Benefits

In terms of EI benefits, the Court drew upon existing SCC jurisprudence, which found that EI benefits are not to be deducted in cases of wrongful dismissal (Jack Cewe Ltd. v. Jorgenson, [1980] 1 SCR 812). The overriding principle is that obligations incurred through ones’ employment should not be deducted to the benefit of the employer where the employer is the wrongful party.

Sobeys Income

With regards to the Plaintiff’s job at Sobeys, the Court drew upon old case law establishing that in order 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” (Karas et al. v. Rowlett, [1944] SCR 1 at para 8).

Using this line of reasoning, the Court reasoned that because the Plaintiff had worked at Sobeys while simultaneously working at McDonald’s, her continued employment at Sobeys could not be viewed as mitigation for her lost job. Instead, the Sobeys income should be considered as a supplement rather than a substitute for her McDonald’s salary. On this basis, the Court found that this income was not deductible.

Home Depot Income

Lastly, the Court also declined to categorize the Home Depot income as deductible. The majority dismissed the claim through stating simply:

The evidence regarding Ms. Brake’s Home Depot income is unclear. In these circumstances, I would refrain from deducting from the damages award the modest sum of $600 that Ms. Brake earned from Home Depot (Brake, ONCA, para 147).

Through a concurring decision however, Feldman J.A. adopted the trial judge’s position that:

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 (Brake, ONCA, para 154).

In doing so, the Court may have narrowed the idea of income mitigation to encompass only those positions that are reasonably comparable in salary and responsibility to the one from which one was wrongfully dismissed.

Indeed, Feldman J.A. provides:

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 (Brake, ONCA, para 158).

 Significance and Final Thoughts

The ONCA’s decision in Brake represents a pro-employee ruling that meaningfully narrows the ability of an employer to deduct mitigating income from any damages owed in wrongful dismissal cases.

In particular, three principles can be drawn from the case:

1. Employers may not be permitted to deduct employment income (EI) benefits in instances of wrongful dismissal;
2. Employers may not be permitted to deduct terminated employees’ income earned from employment that was earned simultaneously with their previous work so long as the income remains proportionate to the amount earned before; and
3. Employers may not be permitted to deduct terminated employees’ income from employment that is not comparable because it was not accepted in mitigation of damages but rather out of need.

Moreover, where an employer presents an alternate job offer to an employee in order to mitigate damages, the Court will undertake an analysis of mixed fact and law in determining whether the employee is obliged to accept the position. Other than monetary considerations, such an analysis may also involve non-tangible factors such as work atmosphere, stigma and loss of dignity.

In contemplating quantum of damage or settlement negotiations, employers are urged to engage experienced labour and employment counsel in any wrongful dismissal proceeding.