Court decision on mitigation and aggravated damages

Exclusive to Canadian HR Reporter from Rudner Law.

A recent Ontario Court of Appeal decision addressed the law on mitigation of damages and the awarding of aggravated damages. The decision should serve as a reminder to employees about the potential liabilities they may face in two regards:

1. employers face an uphill battle when they argue that a dismissed employee did not take reasonable steps to mitigate their damages; and
2. a dismissed employee can be awarded aggravated damages, in addition to their entitlements upon dismissal, even when there is no medical evidence to demonstrate that the employee suffered a diagnosable psychological injury.

Medical leave

Drago Krmpotic was employed by the defendant companies for almost 30 years, from 1987 to June 13, 2016, when his employment was terminated without cause. Krmpotic suffered a number of workplace injuries over the course of his employment, and had been on medical leave to recover from back surgery.

Two hours after returning to work from medical leave, he was called into a meeting in which his employment was terminated.

Following the dismissal, the employer continued to pay Krmpotic his regular salary for approximately 16 months and maintained his benefit plan for several years. Krmpotic commenced a claim against the companies for wrongful dismissal.

Trial decision

At trial, the judge found that Krmpotic was entitled to a reasonable notice period of 24 months, and was awarded damages in the amount of $48,576 representing the remaining 8 months of notice.

Krmpotic also claimed damages for mental distress, which was rejected by the trial judge on the basis that there was no medical or psychological evidence which confirmed that the manner in which his employment was terminated resulted in mental distress.

However, the trial judge awarded Krmpotic $50,000 in aggravated damages on the basis that the employer acted in bad faith in the manner in which he was dismissed.
Appeal decision

The employer appealed the trial decision, and advanced two primary grounds on appeal:

1. That the period of reasonable notice must be reduced based on Krmpotic’s failure to mitigate his damages; and
2. That the trial judge erred in awarding aggravated damages, since there was no medical evidence of mental distress.

The Court of Appeal rejected both of the employer’s arguments, and upheld the trial decision.

Mitigation of damages

In claims for wrongful dismissal, it is well established that a dismissed employee is subject to the duty to mitigate, which means that they must make reasonable efforts to obtain new employment. The court can reduce the reasonable notice period if the employer can establish:

1. That the dismissed employee failed to take reasonable steps to mitigate their damages; and
2. The employee would have been expected to secure comparable alternative employment had they taken reasonable steps.

The trial judge found that Krmpotic’s attempts to find alternate employment following termination were “scant at best”. Nonetheless, the trial judge did not find that Krmpotic failed to make reasonable efforts to mitigate his damages, since he was 59 years old, recovering from back surgery, and was “significantly limited in his ability to perform the physical labour which his occupation demands on a daily basis”.

Essentially, the trial judge had found that Krmpotic was incapable of securing comparable employment due to his physical limitations.

The Court of Appeal upheld the trial judge’s finding in this regard. Although there was no expert medical evidence establishing Krmpotic’s incapacity for comparable work, the Court of Appeal found that there was sufficient evidence for the trial judge to make the finding, including:

1. Evidence of numerous back and knee problems
2. Evidence of four different back injuries sustained at work, resulting in the need for back surgery
3. Evidence that Krmpotic attempted re-employment, which failed due to physical incapacity.

Therefore, the Court of Appeal confirmed that expert medical evidence is not necessarily required to establish incapacity for the purpose of determining the issue of mitigation.

Aggravated damages

Generally, aggravated damages are available to a dismissed employee when the employer’s conduct in the dismissal process is unfair or amounts to bad faith by being untruthful, misleading, or unduly insensitive, and the employee suffers mental distress as a consequence.

The employer sought to overturn the award of aggravated damages on the basis that there was no evidence of a diagnosable psychological condition suffered by Krmpotic. However, the Court of Appeal ruled that the employer’s argument was an “unduly narrow view” of the meaning of mental distress, finding the following:

“Mental distress is a broad concept. It includes a diagnosable psychological condition arising from the manner of dismissal but is not limited to that. There is a spectrum along which a person can suffer mental distress as a result of the manner of dismissal. At one end is the person who suffers the normal distress and hurt feelings resulting from dismissal, which are not compensable in damages. At the other end of the spectrum is the person who suffers from a diagnosable psychological condition as a result of the manner of dismissal. In between those two end points, there is a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury.”

Although there was no evidence of a diagnosable psychological condition, the Court of Appeal accepted the trial judge’s determination that Krmpotic suffered from anxiety, depression, fear, poor sleep, frustration, and feelings of helplessness as a result of the employer’s bad faith conduct in the course of dismissal.

Accordingly, the Court of Appeal upheld the award of $50,000 in aggravated damages.

Conclusion

This case serves as a reminder of the potential liability your company faces when conducting dismissals. Just because a dismissed employee makes limited efforts to obtain new employment following termination, that does not automatically mean that their damages will be reduced at trial.

Moreover, employers should not assume that an employee’s damages will be limited to payment in lieu of reasonable notice. Courts may award aggravated damages or other heads of damages where there is a finding that the employer acted in bad faith, even if there is no medical evidence of a resulting diagnosable psychological injury.

It is therefore always advisable to seek legal advice prior to carrying out terminations, to ensure that the company does not open itself up to additional liability.

Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].