In overturning a lower court decision, the Ontario Court of Appeal said Peter Bowes had the right to rely on his employment contract with Goss Power, which stated he would receive six months notice or pay in place of notice.
Goss, based in Mississauga, had argued successfully before a lower court that an employee terminated without cause is legally required to mitigate his or her loss — as Bowes did by finding a new job in Toronto — even though the contract was silent on this point.
Bowes in turn argued his employment agreement clearly set out the termination payment, and that he had no duty to mitigate his loss.
"A contract is a contract, and it is expected that it will be honoured," Chief Justice Warren Winkler said in writing for the Appeal Court.
"Nothing short of this can be countenanced."
Bowes began working with Goss in the fall of 2007 as a vice-president and was earning a base salary of $140,000 when he was let go in April last year.
In terminating him without notice, the company said it would keep paying him for the following six months — but also said he was "required to seek out and locate alternate employment."
When it found out he had taken on a new job, it stopped paying him on the basis that he had mitigated his loss successfully. Bowes sued.
In deciding against him, the lower agreed with the company that an employee has to cut his loss on termination — unless the employment agreement states otherwise which, in this case, it did not.
The Appeal Court said that line of reasoning was wrong, saying if an employment contract entitles an employee to money on termination — regardless of how the amount is calculated — the right to the payment is contractual.
"A fixed term of notice or payment in lieu is not equivalent to common-law damages for reasonable notice," the appellate court stated.
"There is no obligation on the employee to mitigate his or her damages."
The point of fixing the payment, the Appeal Court said, is to create certainty.
As a result, it would be unfair to allow an employer to argue otherwise after the fact if it turns out to be to its advantage.
"It is counter-intuitive and inconsistent for the parties to contract for certainty and finality, and yet leave mitigation as a live issue with the uncertainty, lack of finality, risk and litigation that would ensue as a consequence," Winkler wrote.
The court also rejected the notion that Bowes was receiving "a double payment," saying Goss wasn't paying twice.