In Quach v. Mitrux Services Ltd., 2020 BCCA 25, the BC Court of Appeal has confirmed that mitigation earnings must be deducted from an employee’s damages caused by an employer’s breach of a fixed term contract, unless the parties agree otherwise.
Background
When an employer dismisses an employee prior to the expiration of a fixed term contract, the usual rule is the employer will have to pay the employee for the remainder of the term (unless there is an early termination provision).
But what happens if a wrongly dismissed employee obtains new employment before the fixed term would have expired? Does the employee get to receive double-compensation for that period of time? Or is the employee’s claim reduced by the amount of the new earnings? Courts have struggled to decide how to treat an employee’s mitigation earnings in such a situation.
In 1988, the BC Court of Appeal determined that damages for a breach of a fixed term contract should be reduced by an employee’s mitigation earnings. In Neilson v. Vancouver Hockey Club Ltd. 1988 CanLII 3051 (BC CA), the Court held that mitigation earnings must be accounted for like in any ordinary wrongful dismissal case:
In my view, whether a contract of employment is for a fixed period or an indefinite time, the usual rules of mitigation apply and earnings from other sources after termination are taken into account unless the contract provides otherwise.
Neilson has remained the leading case in BC.
In 2016, however, the Ontario Court of Appeal addressed the same question as answered in Neilson, but reached the opposite conclusion. In Howard v. Benson Group Inc. (The Benson Group Inc.), 2016 ONCA 256, the Court held that mitigation earnings do not reduce the amount that an employer must pay for breach of a fixed term contract:
In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation.
The Ontario Court of Appeal’s decision in Howard made no reference to the BC Court of Appeal’s decision in Neilson. But the contrasting decisions of the two appellate courts – directly at odds with each other – raised the question of whether the Neilson decision would be revisited in BC.
Mitigation deductions apply to fixed term contracts in BC
In Quach v. Mitrux Services Ltd., 2020 BCCA 25, the BC Court of Appeal reviewed the different lines of authority in BC and Ontario, and addressed the disparity. The Court confirmed that Neilson continues to prevail in BC:
[I]n British Columbia, on the authority of Neilson, the fixed‑term nature of a contract does not entitle the employee to damages in the full amount of unpaid wages for the balance of the term without deduction of monies earned elsewhere during the term
The result of Neilson, Howard, and now Quach, is that the lines of authority in BC and Ontario cannot be reconciled. Until the Supreme Court of Canada weighs in, it is likely that the law will remain at odds in the two provinces.
Even though mitigation deductions will usually apply to damages for breach of a fixed term contract, the Court in Quach also held that this general rule may be displaced by a contractual term to the contrary. Such was the case in Mitrux, where the parties had agreed that the employer would pay the full balance of the remaining term in the event of early termination. As a result, the usual rule was displaced, and the dismissed employee was entitled to compensation for the full balance of the term without any mitigation deductions.