In a recent Ontario case, the court found that an employee could not be penalized under a settlement agreement for failing to mitigate his loss of employment after he became disabled.
What Happened?
The employee worked for the employer for 32 years in various roles. The employer is a construction company that specializes in bridge construction.
The employee was dismissed without cause on January 5, 2015, and a settlement agreement was negotiated. At the end of his employment he was making approximately $75,000 per year as his base salary.
The settlement agreement provided for an initial payment of $56,250, and two other payments of $75,000, to be payable on September 30, 2015 and September 30, 2016 respectively. The two payments of $75,000 were subject to the employee seeking reasonable alternate employment, with a corresponding reduction of the payment for that period should he fail to do so, or if he received income from such reasonable alternate employment or any other source. There was an additional $5,000 available for reimbursement of fees incurred towards securing alternate employment.
Shortly following the employee’s termination, he registered with Canada Manpower to seek alternate employment and made one phone call in pursuit of it.
He claimed that he experienced depression about his termination and that longstanding pre-existing illnesses of diabetes, hypertension and hypercholesterolemia became symptomatic. The employee stated by late February 2015 he was effectively unable to leave his house in search of any employment.
Then, on March 19, 2015, the employee was taken to a hospital by ambulance because of difficulty breathing; he subsequently developed sepsis leading to acute renal failure and septic shock. He underwent emergency surgery and rehabilitation but is on dialysis twice weekly for the remainder of his life. He was initially confined to a wheelchair for several months. He applied for and received Canada Pension Plan Disability Benefits.
When the employee contacted the employer in advance of the September 30, 2015 payment and communicated that he was extremely ill and unable to seek reasonable alternate employment, the employer suspended payment of the additional $75,000 for 2015 and later similarly refused to make the 2016 payment on the grounds the employee had failed to mitigate, or that the obligation to pay became frustrated or void once he became disabled.
Parties’ Positions
The employer argued that the employee’s failure to seek alternate employment relieved it of its obligation to pay.
The employee argued that his inability to seek alternate employment excused him of that obligation and the employer was required to make the payments.
Decision
The court stated that if the employee had been capable of searching for work, and did not do so, that would have been a wilful failure to mitigate; however, that is not what happened.
The court found that the employee did not wilfully fail to comply; rather, he became unable to do so. The court stated:
“I find that his disability and resulting incapacity was not within the reasonable contemplation of the parties at the time of the agreement. [The employee] would not logically agree to a condition that required him to do that which was physically impossible. Similarly, the [employer] could not, in good faith, have imposed such a condition without clearly stipulating that that was their intent. The only rational inference is that both the employee and the employer contemplated that [the employee] would be required to seek reasonable alternate employment so long as he was capable of doing so. This qualification is an implied term of the agreement, reasonably expected by the parties, and not overridden by the language of the agreement.”
The court found that the employee’s disability relieved him of his duties to seek employment under the contract, but did not extinguish the employer’s obligation to pay.
As a result, the court granted the employee’s claim to enforce the termination agreement and to receive the two outstanding payments of $75,000 each.
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At Campbell Bader LLP, our Mississauga employment lawyers have been representing non-unionized employees in workplace disputes since 1999. We know that such disputes can be very stressful and can get emotional quickly. We seek to simplify the law so that you understand your options and make informed decisions. We leverage our extensive experience advising employers to provide insightful guidance to employees who are facing challenging circumstances at work. We work hard to protect you.
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