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Can a Pre-Existing Job or Side Business Affect an Award for Damages for Wrongful Dismissal?

The ongoing pandemic has substantially changed the job market over the past year in several ways, including employees being laid off or terminated at a higher rate, and employees increasingly seeking additional employment or self-employment to provide financial security during these uncertain times. In light of these changes, the question of how multiple jobs or self-employment can affect an employee’s award for damages in a wrongful dismissal case is becoming an increasingly important consideration.

Once an employee establishes that they were wrongfully dismissed, they are still required at law to mitigate their damages by making reasonable efforts to find new employment. Failure to do so can result in the Court reducing an award for damages in part or entirety. However, if the terminated employee’s mitigation efforts result in the employee successfully finding new employment during the notice period, their damages will also be reduced accordingly. This principle generally applies to new employment that begins after the employee’s termination.

Pre-existing employment is treated differently than new employment for the purpose of calculating which income counts towards mitigation of damages. The law is well-settled that income from additional employment that pre-existed the employee’s termination is income that the terminated employee would have earned regardless of the dismissal, and as such, in most cases this income will not be counted towards mitigating damages. However, the question of how income from pre-existing self-employment is treated in determining whether an employee’s damages have been mitigated is slightly more complex.

Whether an employee’s income from pre-existing self-employment is considered as having mitigated damages largely depends on whether the employee invests increased time and effort in their pre-existing self-employment, and whether this results in increased profits. If this is the case, then the portion of profit that can be deemed an increase from the time of termination may be counted towards income that mitigates damages.

This was clarified by the Supreme Court of British Columbia in Coutts v. British Columbia, [1998] B.C.J. No. 2531, where the plaintiff had expended considerable extra time and effort in his business following his termination, moving from working on his business part-time to full-time. These increased efforts resulted in the plaintiff doubling his business income relative to his business earnings prior to termination. As a result, the Court concluded that while the portion of the plaintiff’s business income that he generally would have earned prior to termination would not count toward his mitigation income, that the additional earnings would be considered as having mitigated his damages for wrongful dismissal. The Court reasoned that this was because the increased earnings were a direct result of his increased time and effort that he was able to expend as a result of his termination.

A common question employees often have in this scenario is whether they are required to disclose information regarding their mitigation efforts. Specifically, employees often ask whether they are required to disclose that they realized increased profits post-termination as a result of investing more time and effort in their pre-existing employment or self-employment. Conversely, employers may wish to understand what information they are entitled to with regards to a terminated employee’s mitigation efforts in a wrongful dismissal claim. Generally, employees are not mandated to disclose information regarding their income from pre-existing employment or self-employment. However, while there is no bright line rule that requires employees to divulge this information, this information is generally required if the employee hopes to receive an award for damages. To obtain damages in a wrongful dismissal, the employee must provide proof that they have suffered loss from their dismissal. As such, an employee’s failure to adduce evidence regarding their pre-existing income and post-termination income can be fatal to a wrongful dismissal claim for damages. In this situation, a court may find that there is not sufficient evidence establishing that the employee has suffered a loss of income following their termination and may refuse to award damages on this basis.

This was the case in Garcia v. 1162540 Ontario Inc., 2013 ONSC 6574, where the Court found that the employee failed to provide evidence that they were not employed, or not employed at the same level of salary as they were prior to the wrongful termination of their employment. In fact, the Court found that there had been “a complete veil of secrecy drawn over the plaintiff’s employment status after his constructive dismissal” and that it was “just as probable that he replaced his lost income with income from a new job as that he incurred lost income because he was unemployed”.

Although an employee’s decision not to provide information relating to their pre-existing income and post-termination income is tactically risky, in the event that a court decides it can infer that the employee has experienced loss as a result of their termination, employers will be responsible to prove otherwise. Employers ultimately carry the burden of establishing that any loss a terminated employee experienced was avoidable, and a result of the employee’s failure to mitigate their damages. Failure to do so will result in employers being held accountable for a wrongfully dismissed employee’s losses.

At Soni Law Firm we have a proven record of excellence. We are expert wrongful dismissal lawyers and are here to assist both employers and employees in protecting and enforcing their rights. We would be pleased to represent you in your employment dispute. Contact us today to discuss your concerns about constructive dismissal. We offer free consultations and are here to listen.

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Rahul founded Soni Law Firm, a boutique employment, labour, and human rights law firm, with the goal of taking his Downtown Toronto litigation experience and making it accessible to Ontario’s Main Street employees and employers.