Six months’ severance is six months’ severance! Dismissed employee awarded full contractual severance, despite new job
June 29th, 2012
In its decision released on June 21, 2012 in Bowes v. Goss Power Products Ltd., 2012 ONCA 425, the Ontario Court of Appeal confirmed that where an employer has agreed to continue paying salary to a dismissed employee for a fixed period in a written employment agreement, that is the obligation and it will be enforced. In particular, in the case of the dismissed employee, Mr. Bowes, it was not open to his former employer to cease paying his salary during the six month contractual notice period simply because Mr. Bowes was fortunate enough to find a new job just two weeks after he was dismissed.
From a contract law perspective, there is nothing terribly unusual about this case. Mr. Bowes’ Employment Agreement said if he was dismissed after more than 36 months of service but before 48 months of service he would have his salary continued for six months. However, after the employer found out that its former employee had found a new job so quickly it ceased paying his salary and tried to argue that the Employment Agreement was merely a confirmaton of the common law obligation to dismissed employees: to pay reasonable salary in lieu of an appropriate period of notice until, and only until, the employee mitigates his/her damages by finding a new position at a similar salary. The original application judge agreed with the employer. A five-judge panel of the Court of Appeal did not. A contract is a contract and, as expressed by Chief Justice Winkler on behalf of a unanimous court, “From a practical perspective, it is worth repeating that if parties to an employment agreement specifying a fixed amount of damages intend for mitigation to apply upon termination without cause, they must express that intention in clear and specific language in the contract.”
There are two lessons to be learned here, depending upon your perspective. For employers, if you want an ability to stop paying a dismissed employee who has found a new job – put it in the contract! For employees, especially dismissed ones, if you are offered an agreement that pays you a fixed amount of salary upon termination with no clawback if you find a new job, and you are confident in your ability to more quickly find new work – take the deal!