The Ontario Court of Appeal reached this decision by re-characterizing the concept of "fixed term notice". Prior case law regarded a fixed term of notice or payment in lieu as being equivalent to common law damages for reasonable notice. However, the Ontario Court of Appeal disagreed with this characterization, and found that when an employment agreement specifies a period of notice, the parties are simply inserting a term akin to a pre-estimate of damages that would flow from non-performance of the agreement. Courts have enforced these provisions outside of the context of the employment relationship, and importantly, have found that these provisions are not subject to the duty of mitigation. It therefore follows that, if a fixed term of notice is to be treated as fixing liquidated damages, an employee whose fixed term contract is pre-maturely terminated will not be under any obligation to mitigate his or her damages.
This decision now brings Ontario law into line with similar case law out of the British Columbia, Alberta and Nova Scotia courts, which for some time have held that employees that are subject to fixed term contracts are not required to mitigate their damages. However, the parties to an employment contract can still specifically agree that mitigation applies, and insert an enforceable provision in the contract to that effect. The onus is placed on the employer in this instance, as the oft-quoted "disparity in bargaining power" between the employer and employee has swayed the Ontario Court of Appeal to find that there is nothing unfair about requiring employers to be explicit in their employment contracts if they intend to require an employee to mitigate.
