



COURT OF APPEAL FOR ONTARIO

CITATION:
Bowes v. Goss
    Power Products Ltd., 2012 ONCA 425

DATE: 20120621

DOCKET: C54173

Winkler C.J.O., Simmons, Cronk, Armstrong
    and Watt JJ.A
.

BETWEEN

Peter Bowes

Applicant (Appellant)

and

Goss Power Products Ltd.

Respondent (Respondent)

Alex Van Kralingen, for the appellant

David Rosenfeld, for the respondent

Heard: May 25, 2012

On appeal from the order of Justice Kevin W. Whitaker of
    the Superior Court of Justice, dated July 5, 2011, with reasons reported at 2011
    ONSC 4445, 95 C.C.E.L. (3d) 228.

Winkler
    C.J.O.:

A.

Introduction

[1]

The issue on this appeal is whether an employee, who is terminated
    without cause, is required to mitigate his or her loss when entitled to a fixed
    term of notice or pay
in lieu
, and the contract of employment is
    silent with respect to mitigation.

[2]

The appellant, Peter Bowes, entered into a written contract of
    employment with the respondent, Goss Power Products Ltd., which provided that
    he would receive six months notice or pay
in lieu
thereof if his employment
    was terminated without cause.  The employment agreement, prepared by the
    respondent, is silent with respect to a duty to mitigate.

[3]

The respondent terminated the appellants employment without cause.  The
    letter of termination stated that the appellant would be paid his salary for
    six months but was required to seek alternative employment during this period,
    keeping the respondent apprised of his efforts in this regard.

[4]

Approximately two weeks after he was terminated, the appellant obtained
    a new position at the same salary he had been earning with the respondent.  After
    paying the statutorily required three weeks salary, the respondent ceased
    making salary payments to the appellant.  The appellant brought an application
    under rule 14.05 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg.
    194, asking for a determination of rights pursuant to his employment agreement.

[5]

In his application, the appellant argued that the employment agreement
    set out the termination payment that was due and owing.  He had no duty to
    mitigate and was accordingly entitled to the amount set out in the employment
    agreement.  This amount, he stated, should be paid out in a lump sum at the
    time of termination.  The respondent argued that the appellants position was
    contrary to the settled case law on mitigation and was inconsistent with a
    reasonable interpretation of the agreement.  The appellant had only suffered
    two weeks loss of salary, which is less than the statutory minimum notice
    period.

[6]

The application judge held that, where it contains a fixed severance
    entitlement, an employment agreement is subject to a duty to mitigate unless the
    agreement, either directly or by implication, relieves the employee of this
    obligation.  Since the agreement at issue provided no such exemption from the
    duty to mitigate, the appellant was not entitled to the full amount provided
    for under the agreement as he had mitigated his loss by finding new employment.
    The application judge also held that the severance payment was not due as a
    lump sum.

[7]

The appellant appeals from this ruling.  However, he has not appealed
    the decision as it relates to the timing of the payment.

[8]

For the reasons that follow, I would allow the appeal.

B.

Facts

[9]

The appellant began his employment with Goss Industries Inc., the predecessor
    of the respondent, in the fall of 2007 in the capacity of Vice-President, Sales
    and Marketing.  He signed an employment agreement on September 26, 2007
    (Employment Agreement) and commenced work for the respondent on October 9,
    2007.

[10]

The
    Employment Agreement was prepared by the respondent and presented to the
    appellant for signature.  It was signed on behalf of the employer by the respondents
    President.

[11]

The
    Employment Agreement contained provisions setting out the appellants salary
    and other aspects of his compensation package.  His base salary was set at $130,000
    per annum.  There was provision for a bonus of up to one-half of his base
    salary and he was given a car allowance.  The base salary had increased to
    $140,000 by the date of termination.

(1)

The Employment
    Agreement

[12]

The
    severance provision in the Employment Agreement is set out at paragraph 30(c):

30. The Employees employment may be terminated in the
    following manner and in the following circumstances:



(c) By the Employer at any time without cause by providing the
    Employee with the following period of notice, or pay
in lieu
thereof:

(i)

Four (4) months if the Employees
    employment is terminated prior to the completion of twenty-four (24) months of
    service;

(ii)

Five (5) months if the Employees
    employment is terminated prior to the completion of thirty-six (36) months of
    service;

(iii)

Six (6) months if the Employees
    employment is terminated prior to the completion of forty-eight (48) months of
    service; and

(iv)

Seven (7) months plus one (1) month for each
    additional full year of service over four years if the Employees employment is
    terminated after forty-eight (48) months from commencement up to a maximum of,
    in total, twelve (12) months notice.

[13]

Paragraph
    31 of the Employment Agreement provides that the payment provided for in
    paragraph 30(c) is calculated on base salary only.

[14]

Paragraph
    33 of the Employment Agreement provides:

33. The Employee agrees that the
    notice provided [in] subsection 30(c) is in compliance with and in excess of
    the statutory minimum standards owed to the Employee and set out in the
Employment
    Standards Act
and constitutes full and complete satisfaction of any claim
    he/she may have to notice or compensation
in lieu
thereof, and to any
    other payments whatsoever (including any and all damages for wrongful
    dismissal) as a  result of the termination of employment and the Employee
    agrees to release the Employer from any and all claims whatsoever which the
    Employee may have arising out of the termination, save and except for
    compliance with the terms herein set out. It is agreed that the notice provided
    in subsection 30(c) shall be an absolute, full and complete defence to any
    action or claim which the Employee may advance against the Employer as a
    consequence of any termination without cause, including, without limitation,
    any claim for constructive dismissal.

[15]

The
    Employment Agreement contains a whole agreement clause, which stipulates that
    amendments must be in writing. The agreement is silent about the duty to
    mitigate or whether any termination payment is due as a lump sum. It also
    states that the appellant had the opportunity to seek out and obtain
    independent legal advice  prior to the execution of the Employment Agreement,
    although the appellant did not do so.

(2)

Termination of Employment

[16]

On
    April 13, 2011, the respondent terminated the appellants employment with
    immediate effect, that is, without any notice.  The letter of termination
    stated in part:

Pursuant to your employment
    agreement dated September 26, 2007 (the Employment Agreement), GOSS Power
    Products Ltd. (GOSS) will provide you with salary continuance and car
    allowance for the next six (6) months until October 13, 2011 (the Notice
    Period). Throughout that time you are required to seek out and locate
    alternate employment and advise GOSS immediately should you secure alternate
    employment prior to the end of the Notice Period.

[17]

On
    April 20, 2011, the respondent issued a record of employment which stated that
    the appellant was entitled to six months salary, as salary continuation, in
    the amount of $2,692.31 per week (based on a base salary of $140,000).  In the comments
    section of the record of employment it stated that he was terminated without
    cause and the salary continuance is expressed as Starting Thursday, April 14/11
    and Ending Wednesday, Oct. 12/11.

[18]

The
    appellant commenced employment with another employer on April 25, 2011, at the
    same salary he had been paid by the respondent.

[19]

Upon
    becoming aware that the appellant had secured alternative employment, the respondent
    took the position that he was only entitled to receive the minimum entitlement
    under the
Employment Standards Act, 2000,
S.O. 2000, c. 41, of three
    weeks pay
in lieu
of notice.  The basis for this position was that
    the appellant had mitigated his loss successfully, which ended the respondents
    obligation to continue the payment of the salary continuance under the
    Employment Agreement.

C.

The Decision of the Application Judge

[20]

Because
    the appellant had only received three weeks pay
in lieu
of notice,  he
    brought an application on May 11, 2011 in the Superior Court, pursuant to rule
    14.05, for a determination of his rights under the Employment Agreement.  He
    asserted that he was entitled to receive the entire termination payment as
    specified in the Employment Agreement and that the payment was not subject to a
    duty to mitigate. The application was heard on July 5, 2011 and, in an
    endorsement released on July 25, 2011, the application judge held that the
    appellant was obliged to mitigate and was entitled to only the statutory
    minimum paid by the respondent.

[21]

The
    application judge began the analysis section of his endorsement by stating:  It
    is well established that in wrongful dismissal cases where there is a claim for
    damages, employees are obliged to mitigate in the absence of agreement to the
    contrary.  He noted that, although it is open to the parties to agree that the
    duty to mitigate does not apply, either expressly or by implication, this
    obligation to mitigate does not arise as an implied term of the agreement but
    rather as a principle of damages.  The issue in the present case, he stated, is
    whether the same principle applies where an employment agreement contains a
    specified period of reasonable notice.

[22]

Applying
    the decision of Nordheimer J. in
Graham v. Marleau, Lemire Securities Inc.
(2000),
    49 C.C.E.L. (2d) 289 (S.C.), which the application judge found at this point
    to be settled law [in Ontario], the application judge concluded that the duty
    to mitigate applied to the calculation of damages.  He held that: [T]he mere
    fact that the parties have agreed on the period of reasonable notice does not
    mean that the obligation to mitigate is ousted by agreement.  In the result he
    found that the respondents interpretation of the Employment Agreement was the
    correct one.

D.

Analysis

[23]

It
    is well-settled law that employment agreements are subject to the ordinary
    principles of contract law.  Peculiar to employment law, however, is the
    principle that, unless otherwise stated, every employment agreement contains an
    implied term that an employer must provide reasonable notice to an employee prior
    to the termination of employment.  If the employer fails to provide reasonable
    notice of termination, the employee is entitled to damages that flow from this
    breach.

[24]

However,
    the employee is bound in law to mitigate such damages as best as he or she is
    able.  In other words, the employee must make reasonable efforts to mitigate
    the damages by seeking an alternative source of income:  see
Bardal v.
    Globe & Mail Ltd.
(1960)
,
    24 D.L.R. (2d) 140 (H.C.J.), at pp. 143-44;
Evans v. Teamsters Local Union
    No. 31
, 2008 SCC 20, [2008] 1 S.C.R. 661, at paras. 28-29. Laskin C.J.,
    writing for a majority of the Supreme Court of Canada, described the duty to
    mitigate in
Michaels v. Red Deer College
, [1976] 2 S.C.R. 324, at p.
    330:

The primary rule in breach of contract cases, that a wronged
    plaintiff is entitled to be put in as good a position as he would have been in
    if there had been proper performance by the defendant, is subject to the
    qualification that the defendant cannot be called upon to pay for avoidable
    losses which would result in an increase in the quantum of damages payable to
    the plaintiff. The reference in the case law to a "duty" to mitigate
    should be understood in this sense.

[25]

However,
    the parties to employment agreements can, and often do, substitute a fixed
    period of notice in the agreement, thereby displacing the common law period of
    reasonable notice.  Parties are entitled to do so provided that they do not
    violate the minimum statutory requirement relating to notice:  see
Machtinger
    v. HOJ Industries Ltd.
,
[1992] 1 S.C.R. 986, at pp. 998-1002.

[26]

Establishing
    a pre-determined period of notice in the contract of employment has certain
    distinct advantages.  Most notably, it provides certainty. From the employers
    perspective, it has the advantage of capping the period of reasonable notice
    that a court might otherwise award in a suit for wrongful dismissal.  Likewise,
    from the employees perspective, it ensures a guaranteed entitlement that may
    be greater than that which a court would award under common law.  For both
    parties, pre-determining the period of notice avoids the need for litigation to
    assess notice upon termination.

[27]

The
    question raised on appeal is this:  when an employment agreement fixes the
    period of notice but makes no specific reference to mitigation, does this
    attract the obligation to mitigate in the event of a breach in the same way
    that the obligation attaches to the common law duty to provide reasonable
    notice or pay
in lieu
thereof?

[28]

The
    appellant submits that a contractually established notice period is distinct
    from that which arises at common law.  Specifically, he argues that when an employment
    agreement specifies a period of notice the parties are merely inserting a term
    akin to a pre-estimate of damages that would flow from non-performance of the
    agreement.  General principles of contract law permit this as long as the
    condition is not so oppressive as to constitute a penalty, and is reasonable in
    the circumstances:  see
H.F. Clarke Ltd. v. Thermidaire Corp. Ltd.
,
[1976] 1 S.C.R. 319, at pp. 330-31.  Courts enforce such provisions outside of
    the employ­ment setting, and, significantly, such damage provisions have been
    held not to be subject to a duty to mitigate:  see
J.G. Collins Insurance
    Agencies Ltd. v. Elsley Estate
,
[1978] 2 S.C.R. 916, at pp. 937-38.
     The appellant argues that the same approach ought to be taken in the employment
    context where a contract specifies the amount of damages payable upon
    termination.

[29]

The
    respondent argues that the idea of liquidated damages is not apposite to the
    field of employment law.  In the respondents words, the underlying principles
    of damages for wrongful dismissal are inconsistent with the concept of liquidated
    damages.  Thus, mitigation applies in the employment context unless the
    parties stipulate to the contrary in the agreement, either expressly or by
    implication.  The respondent cites as authority the
Graham
decision relied
    upon by the application judge.

[30]

In
    particular, the application judge relied upon the
following
passage from
Graham
, at para. 53:

I agree with the thrust of the cases that hold that the
    principle of mitigation ought to apply to a contract of employment that
    contains a provision that stipulates what notice is to be given, or what
    payment to be made
in lieu
of notice, if the termination of the
    contract occurs. Such a stipulation is nothing more than an agreement between
    the parties as to the length of the reasonable notice to terminate the
    contract. I see no reason why there should be any distinction drawn between
    contracts of employment where the notice period is not stipulated and those
    where it is with the result that there would be a duty to mitigate in the
    former but not in the latter. If that were the case, it would seem to be an
    unfair result for the employer simply because the parties tried to agree in
    advance on the proper notice and thereby eliminate that as an issue in the
    event of a dismissal  subject of course to the courts overriding right to
    determine the reasonableness of such an agreement in any given case.

[31]

Relying
    on
Graham
, the application judge concluded that parties are free to
    contract out of the obligation to mitigate, either expressly or by implication,
    but the fact that they have agreed on a period of reasonable notice does not
    mean that the obligation to mitigate is ousted by agreement.  A desire for
    certainty in setting out a specific term of notice does not mean that the
    parties intended to relieve the appellant of his obligation to mitigate.

[32]

The
    application judge summarized the law as set out in
Graham
and the
    cases that followed it, in these words:

[T]he core question  is - what did the parties intend?  Certainly
    the parties could if they had so wished, provide that Bowes owed no duty to
    mitigate his losses.  Where the law following
Graham
clearly indicates
    that mitigation will be assumed as a general principle of contract law, the
    parties must in their choice of language, indicate that the presumption is rebutted.

[33]

I
    disagree with this line of reasoning.

(1)

A fixed term of notice or payment
in lieu
is not equivalent to
    common law damages for reasonable notice

[34]

An
    employment agreement that stipulates a fixed term of notice or payment
in
    lieu
should be treated as fixing liquidated damages or a contractual
    amount.  It follows that, in such cases, there is no obligation on the employee
    to mitigate his or her damages.

[35]

To
    reiterate, the premise of
Graham
,
    set out at para. 53,
was as follows:

[A contractually fixed term of notice]
is nothing more than an agreement between the parties as to the length of
    the reasonable notice
to terminate the contract. I see no reason why there
    should be any distinction drawn between contracts of employment where the
    notice period is not stipulated and those where it is with the result that
    there would be a duty to mitigate in the former but not in the latter.
    [Emphasis added.]

[36]

In
    my view, Nordheimer J. in
Graham
, and the application judge in this
    case, erred by treating a contractually fixed term of notice as effectively
    indistinguishable from common law reasonable notice.

[37]

When
    parties contract for a specified period of notice or pay
in lieu
they are
    choosing to opt out of the common law approach applied in
Bardal
.
In doing so, the parties should not be taken as simply attempting to replicate
    common law reasonable notice.  The Alberta Court of Appeal explained as follows
    in
Brown v. Pronghorn Controls Ltd.
, 2011 ABCA 328, 515 A.R. 128, at
    para. 47:

If the contract entitles the
    employee to payment of money, howsoever calculated, on termination, that right
    to that money is contractual. As such, the parties were not bound to specify an
    entitlement that is equal or even analogous to the quantum of reasonable notice
    that the common law might require if the contract was silent.

Damages for contractually stipulated notice or pay
in
    lieu
should not be analogized directly to damages for common law
    reasonable notice.  The parties have specifically contracted for something
    different; it is an error to simply equate the two.

[38]

This
    case demonstrates this point. Here, the maximum entitlement under the agreement
    is twelve months, which is approximately half of the upper end of the range of
    damages for wrongful dismissal at common law. The agreement also limits the
    damages to a quantum based on the appellants base salary.  Therefore, the
    contractually stipulated damages exclude the bonus (valued at up to one-half the
    appellants base salary), car allowance and other benefits from the
    calculation, which would be included in total compensation under the common law
    (providing, in the case of the bonus, that the trial judge did not make a
    finding that it was discretionary, at the employers option).

(2)

Payment
in lieu
of a fixed term of notice, being liquidated damages
    or a contractual amount, is not subject to a duty to mitigate

[39]

The
    application judge likewise fell into error when, in following
Graham
,
he concluded that:  [T]he mere fact that the parties have agreed on the
    period of reasonable notice does not mean that the obligation to mitigate is
    ousted by agreement.

[40]

Having
    concluded that the damages flowing from the breach of a contractually stipulated
    term of notice are indistinguishable from damages for breach of reasonable
    notice at common law, the application judge found that the duty to mitigate
    applied to the contractual term as it did at common law.  In so reasoning, the application
    judges initial error in conflating these two types of damages was compounded.

[41]

Appellate
    courts have held that mitigation does not apply to liquidated damages or
    contractual amounts:
J.G. Collins Insurance,
at pp. 937-38
.  See Harvey McGregor,
McGregor
    on Damages
, 16th ed., (London, UK; Sweet & Maxwell Ltd., 1997), at pp.
    322-23.

[42]

For
    instance, the language of the English Court of Appeal in
Abrahams v.
    Performing Right Society Ltd.
, [1995] I.C.R. 1028 is instructive.
    Hutchison L.J., addressing the issue of a contractually fixed entitlement to
    damages in wrongful dismissal, stated at pp. 1040-41:

[T]he concept of a duty to mitigate is entirely foreign to a
    liquidated damage claim, the whole object of which I take to be to fix a
    certain sum to be paid irrespective of the actual damage suffered by reason of
    the breach. How could it be right to hold a plaintiff, who can show that his
    actual damage is
greater,
to the stipulated sum, but permit an
    employer who can show that it is less to take advantage of that fact? Why
    should such an obviously unfair and inconsistent approach be approved when it
    is open to the additional criticism that to allow it exposes the parties to the
    risk, expense and uncertainty of litigation the avoidance of which is to be
    presumed to be one of the principal reasons for their stipulating for
    liquidated damages?

...

It seems to me that, as a matter of
    principle, where there is a liquidated damage clause which is valid ... there
    is no room for arguments on mitigation of damages, a concept relevant only in
    cases where damages are at large. [Emphasis in the original.]

I note in passing that the respondents assertion that
Abrahams
is in direct conflict with this courts decision in
Taylor
    v. Brown
(2004), 73 O.R. (3d) 358 (C.A.), is misplaced.  Among other
    things,
Taylor
concerned the relationship between common law
    reasonable notice and pay
in lieu
of common law reasonable notice.  It
    did not purport to address situations where notice and pay
in lieu
are
    contractually stipulated.

[43]

In
Mills v. Alberta
(1986), 46 Alta. L.R. (2d) 157 (C.A.), the Alberta
    Court of Appeal dealt with a contract that provided for six months notice or
    payment
in lieu
of notice upon termination.  The court held that no
    duty to mitigate applied. Prowse J.A., writing for a unanimous court, stated at
    p. 160:

Six months without notice is a
    period which, depending upon the circumstances, may be more or less than an
    employee in the private sector might be awarded as damages for wrongful
    dismissal. To avoid such litigation the contract provides for six months
    notice or six months salary in lieu of notice. This is a contractual right to
    salary and not damages that the employee relies on when he is dismissed with
    or without reasons. As such, it is not in my opinion subject to any duty on
    the part of the respondent to mitigate his loss.

[44]

The
    British Columbia Court of Appeal was confronted with a fixed term severance
    clause in
Philp v. Expo 86 Corp.
(1987), 45 D.L.R. (4
th
)
    449. On the issue of mitigation, Lambert J.A. stated at pp. 461-62:

If Mr. Philp had been properly
    dismissed, he would have had no obligation to mitigate his loss. He was
    absolutely entitled to the contractual payment, without any offset for the
    contingency of obtaining work in the future. He would have received the payment
    in fulfillment of his contractual entitlement and not as damages for the breach
    of that entitlement.

[45]

The
    Nova Scotia Court of Appeal in
Boutcher v. Clearwater Seafoods Ltd.
    Partnership
rejected the notion that a stipulated amount of damages was
    just another formulation of
Bardal
damages at common law and went on
    to reject the application of mitigation:  2010 NSCA 12, 288 N.S.R. (2d) 177, leave
    to appeal to S.C.C. refused, [2010] S.C.C.A. No. 144. Fichaud J.A. stated, at
    para. 61:

[A]rticle 19 prescribed a fixed
    $25,000 to fully and finally settle Clearwaters obligations under the
    employment contract. Nothing in the contract varied that sum based on any
    factors, such as those summarized in
Bardal v. Globe & Mail Ltd
.
    that affect the calculation of reasonable notice. As reasonable notice is
    irrelevant, it would be incongruous to deduct the employees actual earnings
    during a period of hypothetical reasonable notice. Nothing  varied the $25,000
    based on actual or potential earnings of the employee after his dismissal. Rather
    article 19 shows an intent that a fixed $25,000 buys closure. Opening a dispute
    of the employees actual or potential earnings for an ongoing indeterminate
    period is the opposite of closure.

[46]

The
    respondent argues that
Boutcher
is distinguishable on the ground that it
    specifies a fixed amount of pay as opposed to a sliding scale.  I disagree. There
    is no material difference whether the quantum is fixed or readily calculable
    from the terms of the agreement:  see
Abrahams
, at pp. 1038-40.  Both
    methods provide for a stipulated benefit. Moreover, in my view, neither method
    provides a basis for implying a term to diminish the benefit which has been
    agreed upon, as the Alberta Court of Appeal explained in
Mills
.

[47]

The
    underlying rationale was
expanded
upon by the
    Alberta Court of Appeal in
Brown
, at para. 48:

Some employees may be able to
    negotiate a rich golden parachute on involuntary termination without cause
    which enormously exceeds what the common law might order by way of reasonable
    notice. It would not have much logic to say that such a clause mitigates
    against the common law damages as such a clause replaces the common law right
    in the first place. The employer could not claim mitigation or failure to
    mitigate against that contracted for sum of money. The employer has not waived
    a damages response. The employer has made a covenant.

[48]

Moreover,
    it is irrelevant for the purpose of my analysis whether such a sum amounts to
    liquidated damages or a contractual amount.  As
Abrahams
makes
clear, at p. 1041, mitigation
    applies in neither case:  I consider the plaintiffs claim is for a
    contractual sum due and that therefore no question of mitigation arises, and
    that if, as the defendant contends, it is for liquidated damages, the same
    conclusion follows.

[49]

Finally,
    by adopting the approach in
Graham
as the law, the application judge
    found there to be a presumption that mitigation was applicable, requiring an
    explicit contractual term to negate a duty to mitigate.  As pointed out above,
    the legal underpinnings for this conclusion are flawed in that, because the
    damages are liquidated, a duty to mitigate does not automatically attach.  Thus,
    while it is indisputable that the parties could have specifically agreed that
    mitigation did apply, no presumption exists in law necessitating that it must
    be contracted away expressly.

[50]

The
    respondent submits that the decisions of this court in
Wronko v. Western
    Inventory Service Ltd.
, 2008 ONCA 327,
    90 O.R. (3d) 547, addendum, 2008 ONCA 479, 91 O.R. (3d) 447,
leave
    to appeal to S.C.C. refused, [2008] S.C.C.A. No. 294, and
Soye v. Corinthian
    Colleges Inc.
,
2009 ONCA 297, are binding authority on point and
    must be followed.  I disagree. These decisions do not decide the issue before
    the court on this appeal.

(3)

Concerns regarding an employees golden parachute or any potential unfairness
    to the employer are without merit

[51]

The
    respondent raises the spectre of the appellant receiving a double payment,
    which they refer to pejoratively as a golden parachute.  To be clear, there
    is no double payment in the sense that the respondent is paying twice.  Nor
    is the entitlement under the Employment Agreement golden as it restricts
    damages to a maximum of 12 months of base salary, and does not include the
    bonus or other benefits.

[52]

It
    is noteworthy that in the sports, entertainment and senior management fields it
    is commonplace for such contractual provisions to not be subject to mitigation.
     Where the rich, famous, and powerful are involved, there is no suggestion that
    such payments are unfair to the other contracting party, even where there is,
    in effect, total mitigation of the loss.  A contract is a contract, and it is
    expected that it will be honoured.  Nothing short of this can be countenanced
    where the terminated employee is less privileged.

[53]

The
    words of the Alberta Court of Appeal in
Brown
, at para. 47, bear
    repeating:

If the contract entitles the
    employee to payment of money, howsoever calculated, on termination, that right
    to that money is contractual.  As such, the parties were not bound to specify
    an entitlement that is equal or even analogous to the quantum of reasonable
    notice that the common law might require if the contract was silent  Some
    employees may be able to negotiate a rich golden parachute on involuntary
    termination without cause which enormously exceeds what the common law might
    order by way of reasonable notice. It would not have much logic to say that
    such a clause mitigates against the common law damages as such a clause
    replaces the common law right in the first place.

[54]

Graham
raises similar concerns regarding the potential for unfairness to the employer that
    could arise if a duty to mitigate were not imposed on the employee.
Graham
states, at para. 53, that to not require an employee to mitigate when a
    fixed term of notice is agreed to in the contract would seem to be an unfair
    result for the employer simply because the parties tried to agree in advance on
    the proper notice.  I do not share this concern for a number of reasons.

[55]

It
    is worthy of emphasis that, in most cases, employment agreements are drafted
    primarily, if not exclusively, by the employer.  In my view, there is nothing
    unfair about requiring employers to be explicit if they intend to require an
    employee to mitigate what would otherwise be fixed or liquidated damages.  In
    fact, what is unfair is for an employer to agree upon a fixed amount of damages,
    and then, at the point of dismissal, inform the employee that future earnings
    will be deducted from the fixed amount.

[56]

Notably,
    the concern expressed in
Graham
seems to disregard the oft-observed disparity
    in bargaining power between employee and employer.  On this point, Iacobucci J.
    endorsed the following excerpt from K. Swinton, Contract Law and the
    Employment Relationship:  The Proper Forum for Reform in Barry Reiter and John
    Swan, eds.,
Studies in Contract Law
(Toronto: Butterworths, 1980) 357,
    at p. 363, in both his decisions in
Wallace v. United Grain Growers Ltd.
,
    [1997] 3 S.C.R. 701, at p. 741, and
Machtinger
, at p. 1003:

[T]he terms of the employment
    contract rarely result from an exercise of free bargaining power in the way
    that the paradigm commercial exchange between two traders does.  Individual
    employees on the whole lack both the bargaining power and the information
    necessary to achieve more favourable contract provisions than those offered by
    the employer, particularly with regard to tenure.

(See also
Slaight Communications Inc. v. Davidson
,
    [1989] 1 S.C.R. 1038, at pp. 1051-52.)  Moreover, in contrast to the concerns
    about fairness noted in
Graham
, the excerpt from Hutchison L.J.s reasons
    in
Abrahams
, above, emphasizes the potential unfairness
to
    employees
inherent in the approach proposed in
Graham
.

(4)

Application to the
    Present Case

[57]

In
    this appeal, the clear goals of the parties in entering into the Employment
    Agreement, which designates a stipulated sum owed upon termination without cause,
    were certainty and closure.  Interpreting the agreement so as to leave
    mitigation in play is contrary to these objectives.

[58]

Indeed,
    the complete release contained in para. 33 of the Employment Agreement dispels
    any doubt that certainty and finality were the respondents goals.  The release
    makes clear that the respondent intended that the terms of the contract would
    preclude resort to the courts.

[59]

Despite
    the care that was taken to prepare an agreement that would avoid a dispute over
    entitlement, the Employment Agreement is silent regarding mitigation.  In my
    view, the parties did not intend that mitigation would come into play in the
    termination of the appellant.

(5)

Conclusion

[60]

In
    summary, the application judge erred in deciding that an agreement specifying a
    fixed notice period, in the event of dismissal without cause, was akin to
    damages
in lieu
of reasonable notice at common law. This mischaracterization
    led him to wrongly conclude that there was a presumption that the appellant had
    a duty to mitigate and that, since the agreement was silent in respect of
    mitigation, the presumption had not been rebutted.  On this basis, he determined
     wrongly in my view  that the parties intended, at the point of contracting,
    that mitigation would be applicable to the calculation of damages upon
    termination.

[61]

Although
    decisions of trial courts appear to go both ways on the issue in this appeal,
    the preponderance of appellate jurisprudence supports the view that, where an employment
    agreement contains a stipulated entitlement on termination without cause, the
    amount in question is either liquidated damages or a contractual sum.  Either
    way, mitigation is irrelevant.  This conclusion is based on the following
    reasoning:

·

By contracting for a fixed sum the
    parties have contracted out of the
Bardal

reasonable
    notice approach or damages
in lieu
thereof.  There is no material difference whether the quantum contracted
    for is fixed or readily calculable from the terms of the agreement.

·

By specifying an amount, the stipulated
    quantum is characterized as either liquidated damages or a contractual sum.

·

Mitigation is a live issue at law
    only where damages are at large, i.e. damages
in lieu
of reasonable notice.  Mitigation is not applicable
    if the damages are either liquidated or a contractual sum.

·

It would be unfair to permit an
    employer to opt for certainty by specifying a fixed amount of damages and then
    allow the employer to later seek to obtain a lower amount at the expense of the
    employee by raising an issue of mitigation that was not mentioned in the
    employment agreement.

·

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.

·

Thus, where an agreement provides
    for a stipulated sum upon termination without cause and is silent as to the
    obligation to mitigate, the employee will not be required to mitigate.

·

Moreover, a broad release in an
    employment agreement, as here, demonstrates an intention to avoid resort to the
    courts, confirms a desire for finality, and bolsters a finding that the parties
    intended that mitigation would not be required unless the agreement expressly
    stipulates to the contrary.

[62]

I
    find the decisions of the appellate courts referred to in these reasons to be
    persuasive and I adopt their reasoning.  From a practical standpoint, it is
    worth repeating that if parties who enter into an employment agreement
    specifying a fixed amount of damages intend for mitigation to apply upon
    termination without cause, they must express such an intention in clear and specific
    language in the contract.

E.

Disposition

[63]

I
    would allow the appeal and set aside the decision of the application judge.  A
    declaration will issue that the appellant is entitled to the amount of salary
in
    lieu
of notice specified in the Employment Agreement notwithstanding any
    salary earned from his new employer.

[64]

The
    costs on the application shall be reversed in favour of the appellant and the
    appellant shall have his costs of the appeal fixed in the amount of $6,946.31,
    inclusive of taxes and disbursements.

Released: June 21, 2012 WKW

W.K. Winkler CJO

I agree Janet
    Simmons J.A.

I agree E.A. Cronk
    J.A.

I agree Robert P.
    Armstrong J.A.

I agree David Watt
    J.A.


