How farmers and cows can explain employer and employee mitigation obligations

When we advise terminated employees about their potential entitlements, one caveat we raise is that any damages over and above minimum entitlements are subject to “mitigation.” This advice often comes as a surprise; many question why employers should be rewarded for an employee’s successful mitigation efforts, particularly in situations where employers have not offered supports like a reference letter or outplacement counselling.

The duty to mitigate is based on a foundational contract law principle that defendants (usually the employer) are not responsible for losses that plaintiffs (usually the employee) could have reasonably avoided. One of my mentors once illustrated this principle with the example of a farmer trying to sell a cow.

Imagine that Farmer A agreed to sell a cow to Farmer B for $500, but Farmer B reneged on their agreement. Farmer A then sold the cow to Farmer C for $200. As such, Farmer A’s damages against Farmer B are now $300, since Farmer A mitigated some of their losses by recovering $200 from Farmer C.  

Applying this example to employment law, imagine that a terminated employee earning an annual salary of $80,000 obtained another $80,000 job within six months of their termination. Even if a court awarded the employee a 12-month notice period, since the employee’s damages were “mitigated” at the six-month mark, the former employer is only obligated to provide compensation for six months instead of 12. If this same employee obtained a $60,000 job at the six-month mark, the employer would be liable for $80,000 for the first 6 months and the difference between $80,000 and $60,000 for the remaining six-month notice period balance.

Proving a failure to mitigate a high bar for employers

This doesn’t mean employers should stay idle and wait for their terminated employees to find alternative employment. Instead, courts place a high burden on employers to demonstrate the employee found or could have found alternative employment commensurate with the employee’s skills and experience. To demonstrate that an employee failed to mitigate, employers must prove: (i) that the employee failed to take reasonable steps to mitigate their damages; and (ii) if the employee had taken reasonable steps, they would have secured comparable alternative employment.

The first branch of this test requires an employee’s efforts to be reasonable, not perfect, and employees are entitled to a period to collect themselves to get over the shock of termination. The second branch of the test requires an employer to lead evidence about the availability of similar employment, which could include aiding the employee by providing a reference letter and/or postings for comparable positions. For example, in one recent case – Gannon v Kinsdale Carriers, 2024 ONSC 1060 – the court found an employee failed to mitigate after the employer facilitated an interview with one of its competitors, leading to a job offer which the employee declined.

Of course, there are always exceptions. Courts have found that most employees on fixed-term contracts – a fixed-term contract with an early termination clause may still be subject to mitigation, if explicitly outlined in the fixed-term contract – individuals that are totally disabled, or “older” employees – in Hettrick v Triple P Paving Co, Ltd, 2021 ONSC 208, the court found a 73-year-old employee was under no duty to mitigate – are not under any duty to mitigate. Employees are also not required to accept job offers from a terminating employer if doing so would result in embarrassment, humiliation, or loss of prestige, nor must they accept a job offer requiring them to uplift their life and move to a faraway location.

Is an inferior position a mitigation of losses?

One mitigation-related question that has been the subject of recent confusion is whether income from “inferior” positions can be deducted. For example, some employees who previously earned annual salaries might accept shift work earning hourly wages that are significantly less than the compensation they previously enjoyed. The uncertainty can be tied to a concurring opinion in the Ontario Court of Appeal’s 2017 Brake decision, 2017 ONCA 402, which held:

“Where a wrongfully dismissed employee is effectively forced to accept a much inferior position because no comparable position is available, the amount she earns in that position is not mitigation of damages and need not be deducted from the amount the employer must pay.”

That concurring opinion was recently applied by a trial court judge in Williamson v Brandt Tractor Inc, 2025 ONSC 2571, stating “if the employee can only find a lower-paying or ranking position, as in the case of Mr. Williamson, the earnings are not deductible.” On appeal, the Ontario Court of Appeal provided the following clarification (2026 ONCA 272):

“There is no authority for the proposition that earnings that come from an inferior position are not deductible in mitigation. The passage in [Brake] cited by the trial judge comes from a concurring opinion and does not state the law in Ontario.”

Deduction of mitigation income from damages

Notably, the Court of Appeal also found that the employer failed to establish that the employee could have obtained comparable employment in a position with his pre-termination compensation. However, the employer still benefitted from the employee’s acceptance of a lower paying position by having almost $33,000 deducted from the damages award. 

Before celebrating a mitigation defence, employers should remember that the burden remains firmly on their shoulders. While the Court of Appeal has clarified that earnings from a lower-paying or otherwise “inferior” position may still be deducted from a wrongful dismissal award, employers must remain cognizant of the high bar required to prove that an employee failed to mitigate. For employees, the takeaway is equally important: accepting a position that falls short of previous status or compensation could result in a lower damages award, but a failure to accept a reasonably comparable job offer could result in no damages award. As such, both parties must carefully consider their post-termination actions and seek appropriate advice to maximize payouts (in the case of employees) or mitigate risk (in the case of employers).

Jeff Rochwerg is an employment lawyer and workplace investigator at Turnpenney Milne LLP in Toronto.