Mitigation and Offers of Re-employment: Fredrickson v. Newtech Dental Laboratory Inc.

When an employee is wrongfully dismissed and the court determines that the employee is entitled to damages in lieu of reasonable notice, the employer will almost always argue that the employee was required to mitigate those damages and failed.  In essence, the employer will allege that the employee failed to take reasonable steps to obtain alternative employment, and that if the employee had taken those steps, then the damages suffered by the employee from wrongful dismissal would have been reduced.  If the court agrees that there was a failure to mitigate, then the employee may be barred from recovering a portion of the damages arising from wrongful dismissal on the basis that those damages could have been prevented by the employee.  Notably, mitigation does not require the employee to accept just any offer of employment in an effort to mitigate – as an example, the court will not find a failure to mitigate where a CEO declines to accept employment as a cashier at a fast-food restaurant, since those two positions are not at all comparable.

An interesting situation arises when the former employer offers the employee re-employment on the same terms.  The question then becomes whether a reasonable person in the employee’s position would have accepted the employer’s offer of re-employment.[1]  In Fredrickson v. Newtech Dental Laboratory Inc., 2015 BCCA 357 (“Fredrickson”), the British Columbia Court of Appeal recently considered that scenario and held the employee did not fail to mitigate by declining an offer of re-employment, where the offer did not fully compensate her for lost income, and where the trust relationship between the employee and employer had deteriorated because of the employer’s actions.

The Decision                                          

In Fredrickson, the plaintiff employee was employed as a dental technician assistant by the defendant company, for a period of eight and a half years.  The plaintiff had a good working relationship with the owner of the defendant company, her “boss”, and they worked closely together in a small office.

In 2011, the plaintiff came under stress resulting from her husband’s illness and her son being involved in an accident, both of which her boss was aware of.  On April 28, 2011, the plaintiff went on a medical leave of absence without informing the defendant that she was doing so.  While the plaintiff was on leave, the defendant disputed her entitlement to take leave and there was some contention that the defendant did not properly respond to the plaintiff’s request to complete Employment Insurance forms. During this time, the plaintiff’s boss surreptitiously recorded two conversations with the plaintiff, which were later used by the defendant at trial.

On July 20, 2011 the plaintiff returned to work after her doctor advised her that she was fit to do so.  On the same day, the defendant informed her that she was laid off because of insufficient work, and provided the plaintiff with a record of employment and a letter of reference.  The plaintiff, through counsel, sent a demand letter to the defendant on September 9, 2011.  In that letter, the plaintiff took the position that she had been wrongfully dismissed when she was laid off in July.

The defendant responded to that letter with an offer of re-employment, with re-employment commencing September 26, 2011, and stated that the plaintiff had an obligation to mitigate her damages by accepting re-employment.  Then, on October 19, 2011, shortly after the plaintiff had commenced her action against the defendant claiming wrongful dismissal, the defendant made a second offer to re-employ the plaintiff including an offer to pay her unpaid wages from July 20, 2011 until September 26, 2011.  Following this, on October 25, November 4, 2011, and April 19, 2012, the defendant made three further offers to re-employ the defendant, including payment of lost wages from July 20, 2011 to September 23, 2011 (the date the first re-employment offer was made), at the same position, with identical salary and benefits, as before.  The plaintiff declined all of these offers.

At trial, the plaintiff was successful at showing that she was wrongfully dismissed, and in fact, the defendant acknowledged that it had dismissed the plaintiff without cause and without reasonable notice in its closing submissions.  Thus, the only issue that remained was whether the plaintiff had failed to mitigate her damages.

The plaintiff tendered evidence that she had applied for nearly 100 jobs, and was not successful obtaining any of those positions, until she eventually secured a position as a bookkeeper in August 2012.  However, the trial judge concluded it would have been reasonable for the plaintiff to accept re-employment by the defendant and that by failing to do so she had failed to mitigate her losses.  As a result, the plaintiff was only awarded damages from the period between July 20, 2011 and September 23, 2011, the date the first offer was made.

The plaintiff appealed, and the Court of Appeal overturned the trial judge’s finding on mitigation.  The Court of Appeal held that the trial judge erred by (1) “failing to accord significance to the incomplete nature of the offer” and by (2) “failing to reflect the intangible element of mutual trust, commensurate with the nature of employment, that flows like a current in the employment relationship”.[2]

On the first point, the Court of Appeal stated that none of the offers made by the defendant were “make whole” offers, in that the offers did not fully compensate the plaintiff for her lost income following July 20, 2011.  The first offer did not include an offer to compensate the plaintiff for the income she had lost between July 20 and September 26, 2011.  The second offer did not compensate the plaintiff for the lost income between September 26, 2011 to October 18, 2011, and each of the other offers left a similar gap in the compensation being offered to the plaintiff.   As such, the “offers coming from Newtech to Ms. Fredrickson never caught up to her loss of income situation”.[3]  The Court of Appeal held the trial judge did not give adequate consideration to the gap in income between the plaintiff’s claim for wrongful dismissal and the defendant’s offers of re-employment, since even the earliest offer for compensation resulted in the plaintiff losing 8% of her annual income.[4] Further, if the plaintiff accepted the offer of re-employment, she would have a very difficult time maintaining a claim for the lost income.[5]

Aside from this, the Court of Appeal found the trial judge erred by not considering the trust relationship between the plaintiff and defendant.  The Court stated that whether or not a reasonable person would accept an offer of re-employment includes an assessment of the obligations of good faith or fidelity on the part of the employer and employee, since mutual trust is an important aspect of the employment relationship.[6]   The Court held that the plaintiff’s trust in the defendant had been eroded by the defendant’s actions in at least two ways.  First, as stated previously, the plaintiff’s boss had secretly recorded conversations with her and then used those conversations at trial.  Second, her boss had engaged in conversation with another employee, in which he agreed that the plaintiff would be too embarrassed to return to work with the defendant.  Interestingly, the Court found that whether or not the plaintiff felt “embarrassed” was inconsequential, and what mattered was that her boss had breached the confidence of the plaintiff by having this conversation, particularly in the context of a small workplace.  The Court found that as a result of the defendant’s actions, “any chance of repairing the employment relationship was irretrievably lost”.  The Court of Appeal’s reasoning suggested that even if the offers had been “make whole” offers, the trial judge’s finding would still not have been upheld because the employee no longer trusted the employer. Thus, the decision illustrates in some situations, it will not matter that re-employment was offered, since the damage has already been done.