Mitigation deductions from wrongful dismissal damages aren’t about rewards, they’re about the extent of employee losses
When we advise terminated employees about their potential entitlements, one caveat we raise is that any damages over and above minimum entitlements are subject to “mitigation.” This advice often comes as a surprise; many question why employers should be rewarded for an employee’s successful mitigation efforts, particularly in situations where employers have not offered supports like a reference letter or outplacement counselling.
The duty to mitigate is based on a foundational contract law principle that defendants (usually the employer) are not responsible for losses that plaintiffs (usually the employee) could have reasonably avoided. One of my mentors once illustrated this principle with the example of a farmer trying to sell a cow.
Imagine that Farmer A agreed to sell a cow to Farmer B for $500, but Farmer B reneged on their agreement. Farmer A then sold the cow to Farmer C for $200. As such, Farmer A’s damages against Farmer B are now $300, since Farmer A mitigated some of their losses by recovering $200 from Farmer C.
Applying this example to employment law, imagine that a terminated employee earning an annual salary of $80,000 obtained another $80,000 job within six months of their termination. Even if a court awarded the employee a 12-month notice period, since the employee’s damages were “mitigated” at the six-month mark, the former employer is...
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