A recent Ontario court decision considered the question of expenses incurred by the terminated employee in successfully mitigating her damage claim.
The general proposition that an employee must take reasonable steps to reduce their damage claim leads to the conclusion that the company should be responsible for such expenses incurred in this process.
The Usual Deal
Typically, such expenses are modest and are related to the endeavours of a job search. The genre of these costs is resume preparation, travel expenses to a job interview and occasionally relocation counseling.
This being said, sometimes these expenses can be formidable, particularly where the expenses have resulted in a reduction of the claim due to success in finding new employment.
Facts of the Precedent
This was the fact situation in the above referenced decision. The plaintiff employee sued for expenses incurred due to the acceptance of new employment which required a physical relocation. The nature of the expenses included real estate fees to sell her residence, moving costs and legal fees. These were allowed in the sum of $45,000.
The facts were somewhat particular as the plaintiff also had been persuaded to move to Toronto to accept the position initially. This assisted the plaintiff in advancing the proposition that it was reasonably foreseeable that she would be required to relocate. This was likely an unnecessary, yet supportive fact.
The total claim allowed included expenses on the sale, the purchase of a new residence and the moving and transitional expenses.
The increase in value of the residence sold was not considered as a reducing factor.
Tax Not Considered
The court was not asked to and did not address the issue of tax. A court award of wrongful dismissal damages is fully taxable. This may be so for lost income but should not be so for recovery of out-of-pocket expenses. There may well have been a gross-up to account for the tax on these sums, had this argument been made.
Is There a High Side?
A further issue not reviewed in this case is whether the new income earned from the moving expenses must be greater than the expenses incurred. For example, presume that the new employment started on the last month of the notice period, which hypothetically reduced the claim by $10,000. Would this allow a mitigation expense claim of $45,000 ? or should this claim be capped at the resultant benefit to the employer ?
This issue remains live.
This claim gives added weight to an agreed severance contract. Once such an agreement is in place, this defines the sum to be paid. A move to Vancouver would not be the company’s concern. Barring this contract, the employer must be aware of the extent of such a claim.
Mitigation expenses and the tax implications are important issues to the employee. They should be aware of the potential of such a claim, particularly when negotiating a severance claim and even more so, when living in a remote location and even more more so, when this has happened at the employer’s initiative.
Get Advice and Know Your Rights
Whether you be employer or employee, this issue of mitigation expenses is an important issue to understand. This is a question which requires solid legal advice. For advice on this issue from either side, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.
 Ryan v Laidlaw OCA on tax gross up generally
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