No Obligation to Mitigate while Disabled:

In Fenos v Manulife ( 2019 ONSC 6861) Pomerance J. had a situation where  a settlement agreement required the employer ( not Manulife but rather Facca Inc.) to make severance payments over a period of time subject to the Plaintiff’s obligation to seek reasonable alternate employment, with a corresponding reduction in the severance payments if he failed to do so .

Shortly after the settlement, the Plaintiff became very ill and was completely disabled. He therefore stopped looking for a job.

Facca stopped the payments saying that the Plaintiff had failed to seek alternate employment.

The Court disagreed with the Defendants literal interpretation. The Judge said as follows:

27      The interpretation of a contract requires consideration of the objective intentions and expectations of the parties. In this case, those expectations crystallized on the date of termination. One can presume that the condition was placed in the contract to ensure that Fenos was diligent in mitigating his loss, with a view to reducing the amount of the second and third payments. If Fenos was capable of searching for work, and did not do so, this would be a wilful failure to mitigate and that was the mischief sought to be addressed.
28      That is not what happened. Fenos did not willfully fail to comply. He became unable to do so. I find that his disability and resulting incapacity was not within the reasonable contemplation of the parties at the time of the agreement. Fenos would not logically agree to a condition that required him to do that which was physically impossible. Similarly, the company 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 Fenos 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 Employer then tried to analogize to those cases where the Plaintiff dies during notice period and the issue is whether that ends the employers’ obligation to pay after the date of death. This is how the Court dealt with that argument:

30      Facca relies on the case of Rickards (Estate of) v. Diebold Election Systems Inc., 2007 BCCA 246, 241 B.C.A.C. 263, in which the court held that a similar termination agreement was frustrated by the death of the employee. The court in Rickards noted “[t]hat the death of a party brings to an end a contract requiring personal performance is a venerable principle of the common law” (para. 40). I see Rickards as being distinguishable. First, death is distinguishable from disability. One might reasonably presume that a termination agreement would only continue so long as the employee recipient was alive to receive the benefits. In Rickards, the employee died. The employee’s death prevented him from seeking alternate work but it also extinguished his personal need for compensation.

31      How different this case is, where the employee is still alive, in need of compensation, and unable to seek alternate employment. The decision in Rickards must be considered against the Court of Appeal’s decision in Brito v. Canac Kitchens, 2012 ONCA 61, 287 O.A.C. 293, in which, at para. 16, Cronk J.A. observed that “[t]here can be no obligation to mitigate damages by finding alternate employment where the employee is totally incapable of working.” While Brito did not involve interpretation of a termination agreement, the reasoning is equally persuasive in this context.

34      In short, the reference to “reasonable alternate employment” must logically refer to employment reasonably available in all of the circumstances. Mr. Fenos’ circumstances make it impossible for him to work anywhere. There is no reasonable alternate employment to be sought. A failure to seek out that which does not exist cannot be seen as a breach of the terms of the contract.
My Comments :
It is important to remember that this case involved the  interpretation of a settlement agreement, not the application of the law of reasonable notice.
The common law requires the giving of working notice or in the alternative, to compensate the employee in the same way as if he or she had been given a chance to work out the notice period ( pay in lieu of notice ) .
In this case if the employer had given him 12 month working notice ( assume that 12 months was proper notice ) but he became sick after 3 months and therefore could no longer work, what obligation would the employer have ?
Assume that this employer had no benefit plans like STD or LTD.
Is the employee on working notice entitled to more than would be provided if he had not been terminated ?
This issue has come up in a number of cases but it usually deals with situations  where the employer has decided not to give working notice and provides pay in lieu. In these cases the employer usually has received STD or LTD for the same period and the question is whether or not the wrongful dismissal damages are reduced by the amount of the disability payments.
Remember that there is absolutely no obligation either in the common law or under statute for an employer to pay wages to an employee who is not working due to illness. Only the existence of a contractual STD or LTD plan changes this premise.
I would invite the reader to send me any cases that has dealt with this issue of whether an employee under working notice is entitled to be paid his her wages for a period in which they cannot work due to illness. I am of course not talking about any period covered by statutory ESA payments.
In fact I faced this exact situation in a mediation I did a few years ago. The case did not settle ( not my fault of course) and frankly I don’t know if it has gone to trial yet.