Common Misconceptions in Wrongful Dismissals
There is a common misconception that wrongfully-dismissed employees are entitled to a full severance package immediately upon the termination of their employment. Often, that is not the case.
In many situations, an employer will expect a discount of some nature to account for set offs to legal entitlements arising from termination of employment which the law affords. The following addresses potential reductions that non-unionized, provincially-regulated employees face in Ontario.
What are wrongfully-dismissed employees owed upon termination?
Firstly, let’s establish the entitlements.
Statutory Minimums. In general, your former employer must provide you with all applicable statutory minimums owed upon termination of employment. For employment relationships governed by the laws of Ontario, the Employment Standards Act, 2000 (the “ESA”) provides for the following:
Minimum Notice or Termination Pay
- Employers are required to provide minimum notice of termination or pay in lieu of notice (referred to as statutory termination pay). Loosely summarized, minimum statutory termination pay is calculated at about at least one week’s pay and benefits continuation per year of employment (with a slightly greater formula for short-service employees) up to a maximum of 8 weeks. *Minimum statutory entitlements to notice/termination pay are set out below. An employee’s entitlements are rarely restricted to these minimum statutory entitlements. A different calculation and set of requirements apply to those who are part of a mass termination involving 50 or more employees under the ESA, in which case at least 8-16 weeks’ notice is required depending on the number of impacted employees.
Statutory Severance Pay
- In addition, the ESA provides that certain employees, including those employed (a) for at least 5 years (b) by an employer with an annual payroll of $2.5 million or more, are owed statutory severance pay. Statutory severance pay is calculated at roughly one week’s pay per year of service to a maximum of 26 weeks (6 months) and is pro-rated for completed months of employment. As an aside, the calculation of statutory severance pay is somewhat nuanced and is frequently botched by many employers resulting in a shortfall to their former employees.
Pay in Lieu of Reasonable Notice. In the absence of an enforceable employment contract limiting what happens upon termination, typically, employees in Ontario are entitled to pay in lieu of “reasonable notice” of their dismissal beyond their statutory entitlements.
Judges decide how much notice an employee ought to have been reasonably provided by taking into account core factors such as the following:
- age – elder employees are generally entitled to longer notice periods;
- type of employment – the more senior or rare or higher paying the position, the longer the notice period;
- length of service – the longer the period of employment, typically, the longer the notice period; and
- job market – a poor job market, having regard to the employee’s qualifications, will lead to a longer notice period.
Notice periods can be increased to some extent by a host of other factors that a judge would expect may delay an employee’s ability to replace their job. Collectively, these are referred to as “Bardal factors” based on an old case, namely, Bardal v Globe & Mail Ltd, 1960 CanLII 294 (ON HCJ) which established the test.
The courts have found that longer notice periods are warranted due to the above and other Bardal factors such as an employee’s health issues, pregnancy, bad-faith conduct in the manner of the employee’s dismissal, economic recession impacting the job market, decline in a sector, and many other factors.
In some cases, a termination clause in an employment contract will provide for more or less than the implied entitlement to reasonable notice of dismissal. In any event, employees should obtain legal advice about any termination provisions in employment agreements, because they are often unenforceable.
What types of potential set offs should concern wrongfully dismissed employees?
1. Failure to “Mitigate” Damages
Wrongfully-dismissed employees have a legal duty to take reasonable steps to attempt to mitigate their damages. In most cases, that means trying to replace their old job with a comparable new one.
Former employers frequently argue that their wrongfully-dismissed employees have failed to take adequate steps to mitigate their damages, so that the amounts payable by the employer should be reduced. In relatively uncommon circumstances, the court may find that damages for wrongful dismissal should be reduced for a failure to mitigate.
A reduction in damages owed to wrongfully-dismissed employees due to failure to mitigate can only be awarded if the former employer can meet the difficult burden to prove not only (a) that the wrongfully-dismissed employee failed to take reasonable steps to attempt to mitigate their damages but also (b) that if the wrongfully-dismissed employee had taken reasonable steps, they would have secured new employment.
In the recent case of Williamson v Brandt Tractor Inc, 2026 ONCA 272 (CanLII), a wrongfully-dismissed employee chose not to seek new jobs in his previous field of employment (sales), however, the employer failed to meet its burden to prove that comparable employment was available to the former employee. Consequently, there was no reduction for the former employee’s alleged failure to mitigate.
However, wrongfully-dismissed employees should be cautioned against relying on the high burden imposed on employers to prove that the employee failed to mitigate their damages. The courts have made it clear that plaintiffs in wrongful dismissal actions cannot stand idly by, or unreasonably by, rather than take reasonable steps to try to secure comparable new employment. For example, in one case, Toy v 0954516 BC Ltd, 2022 BCSC 1161, a wrongfully-dismissed employee applied for only three jobs over the course of several months following the termination of his employment. The Supreme Court of British Columbia found that the plaintiff was entitled to a 5.5-month notice period, but reduced it by two months, because there was a strong likelihood that he would have been able to secure alternative employment sooner if had taken reasonable steps to do so.
Employees who make diligent efforts to mitigate their damages unsuccessfully may be able to use the records of their fruitless job search to demonstrate that they should be awarded a longer notice period by the courts. For example, in Adelman v IBM Canada Limited, 2026 ONSC 420 (CanLII), after 18.5 years of employment, a 59-year-old was wrongfully dismissed from his position as director of strategic partnerships. The court found that there appeared to be limited similar employment available because the plaintiff had not found new employment in nearly three years, despite his reasonable steps, which included applying for 100 positions. In the outcome, the court awarded damages based on a notice period of 24 months.
2. Refusal to Accept Comparable New Employment
In some circumstances, if a wrongfully-dismissed employee unreasonably rejects an offer of employment for a position which was comparable to their previous employment, it may reduce what they are owed. The court may reduce an award of damages for wrongful dismissal to reflect what the employee would have received if they had accepted the position.
In that regard, a new position ought to be comparable in terms of status, hours, and remuneration to the position the employee held at the time of dismissal. Comparable employment is not an identical job but one that is readily adaptable to the wrongfully-dismissed employee’s abilities.
For example, in Gannon v Kinsdale Carriers, 2024 ONSC 1060 (CanLII), a 57-year-old employee was wrongfully dismissed from her accounts receivable/dispatcher/office clerk role, after more than 22 years of employment, effective December 31, 2020. The Court found that the wrongfully-dismissed employee declined a verbal offer of employment from a potential new employer, starting early January 2021 for a comparable position with the title of “dispatcher” also performing administrative work and other office duties (earning the same salary and with the same hours of work). In the outcome, the court found that the employee had no damages under the common law.
3. ‘Mitigation’ Income
Some resourceful wrongfully-dismissed employees manage to find a new job more quickly than caselaw would predict. Most earnings from new employment beyond the statutory notice, termination pay and severance pay periods are usually deductible from wrongful dismissal awards. Such earnings may be referred to as ‘mitigation’ income.
Again, amounts earned during the applicable minimum statutory notice and severance periods are not subject to mitigation, so if a wrongfully-dismissed employee were entitled to 8 weeks of statutory termination pay plus 26 weeks of statutory severance pay, then nothing earned from other sources during the first 34 weeks following termination of employment would be deductible.
The Court of Appeal for Ontario clarified a long-standing grey area in a recent decision, namely: Williamson v Brandt Tractor Inc, 2026 ONCA 272 (CanLII). For background, again, a wrongfully-dismissed employee is under no legal obligation to accept an offer of new employment that is not comparable to their previous employment. For several years, there was a lack of clarity about whether earnings from inferior new employment should reduce damages for wrongful dismissal during an overlapping period. In the Williamson case, the lower court found that the plaintiff was not obliged to accept non-comparable new employment (driving a parts vehicle at a lower pay grade) than his previous job (as a salesperson) and, on that basis, the lower court found that earnings from the new employer in a lower-paying or lower-ranking position, should not reduce damages. The Court of Appeal for Ontario reversed the decision of the lower court and resolved the grey area by articulating that earnings from inferior employment during the notional common-law notice period are generally to be treated as mitigation of loss (aside from certain exceptions that did not need to be addressed in the Williamson case).
4. Earnings from an Additional Job
For those holding down two or more jobs, earnings that a wrongfully-dismissed employee receives from another employer will generally not result in a reduction if the amounts would have otherwise been earned. The court will consider whether earnings from an additional employer are a direct substitute for the position the employee lost. If so, there may be a setoff.
In a recent case, Yakubow v Edmonton Granite Memorials Ltd, 2026 ABKB 360 (CanLII), a sales manager was, in effect, wrongfully dismissed from his employment after nearly 21 years. The court considered whether the plaintiff’s earnings from work as a hockey referee should reduce his damages for wrongful dismissal. In the outcome, the court found that they should not because the plaintiff had regularly refereed hockey during his full-time employment with the defendant.
5. Employment Insurance (“EI”) Regular Benefits
Awards for wrongful dismissal are not reduced on account of Employment Insurance (“EI”) Regular Benefits received by the employee following termination of employment. Employers should be advised against attempting to rely on EI regular benefits to reduce their obligations to employees.
Employees should be aware, however, that payments in a wrongful-dismissal settlement may result in an obligation to repay overpayments of EI regular benefits. The Canada Revenue Agency (the “CRA”) may determine that amounts received in wrongful-dismissal settlements should be allocated to periods of time overlapping with the periods for which EI regular benefits were paid. As a result, there could be an overpayment.
Carefully-negotiated separation packages will address this potential set off, for example, by ensuring that the true value of an employee’s weekly remuneration and the separation package are reflected in the settlement documentation. Overlooking parts of an employee’s full remuneration can result in unnecessary repayment obligations to the CRA.
6. Disability Benefits from an Insurer
There is a line of cases addressing the question of whether damages for wrongful dismissal ought to be reduced on account of short-term or long-term disability benefits received by an employee to avoid providing the employee with a double recovery.
In general, the starting point of the court’s analysis is to decide if the plaintiff received a ‘collateral benefit’, meaning some type of gain or advantage and whether it was sufficiently connected to the defendant’s breach of a legal obligation. In other words, the court would consider (a) did the plaintiff receive disability benefits, and (b) was the receipt of disability benefits sufficiently connected to the defendant wrongfully dismissing the plaintiff. . If so, the court will determine if the plaintiff should be permitted to receive what may otherwise be considered a double recovery based on an exception to the general rule against ‘collateral benefits’. One exception to the general rule is where the collateral benefit is received from a private-insurance plan. Often an employee’s long-term disability benefits are secured by way of a third-party insurer, which may be subject to the private-insurance exception.
Typically, judges consider the so-called “intention” of the parties to the notional employment agreement to determine whether amounts in respect of disability benefits ought to reduce awards for wrongful dismissal. That analysis could include a review of any language in a written employment agreement addressing whether the employee was preclude from receiving termination or severance pay overlapping with disability benefits.
While the analysis is not always clearcut, if the employee contributes to the premiums for the benefits in question or indirectly pays for the premiums, for example, by negotiating a lower salary in exchange for benefits coverage, depending on the nature and purpose of the disability benefits, they will likely not be deducted from an award of damages for wrongful dismissal. The court may also review broader policy considerations to incentivize socially-desirable conduct by employers. For example, in one case, Piresferreira v Ayotte, 2008 CanLII 67418 (ON SC), the court found that the defendant treated the plaintiff very poorly, which caused the plaintiff to become disabled and collect disability benefits. The court decided not to reduce the amount of damages that the defendant was obliged to pay to the plaintiff. In other words, the disability benefits that the plaintiff received because of the defendant’s mistreatment of her did not reduce what the defendant owed the plaintiff for wrongful dismissal. The court found that such an outcome would reward, and encourage, such harsh treatment of employees at the time of dismissal.
In a recent case out of Saskatchewan, Korpan Tractor and Parts (Parriwi Management Inc) v Denton, 2026 SKCA 44 (CanLII), a settlement of a long-term disability claim against the insurer did not result in the reduction of damages for wrongful dismissal. There, a long-service employee was awarded 24 months’ reasonable notice, and the Saskatchewan Court of Appeal confirmed that the $25,000 long-term disability settlement he brokered with his insurer was not deducted from the award. The Court reasoned that such a benefit is not a windfall the employer can claim credit for, so it does not reduce what the employer owes for wrongful dismissal.
7. Pension
Senior employees may be compelled to draw their pension following the loss of their employment. The Supreme Court of Canada made it clear in the seminal case of IBM Canada Limited v Waterman, 2013 SCC 70 (CanLII), that pension benefits received by an employee will not reduce damages for wrongful dismissal (unless an employer and employee have clearly agreed otherwise). There, a long-service employee who was a member of IBM’s defined-benefit pension plan was terminated without cause at age 65 and began drawing his full pension while pursuing his claim. The employer argued that the pension payments he collected during the notice period should be set off against his award. The Court disagreed, holding that pension benefits are a form of deferred compensation earned through years of service rather than an indemnity for lost wages, so, like private insurance, they do not reduce what the employer owes for wrongful dismissal.
Because of the complexities of certain pension plans, occasionally, when a wrongfully-dismissed employee draws their pension benefits early, they may be placed in a better financial position in terms of their pension, than if they had not been wrongfully dismissed. In such a situation, the court may factor in what the employee received for the purpose of calculating the pension loss.
What amounts are not subject to potential set offs?
With that group of seven set offs, employees can take solace in some protections. The following amounts generally cannot be reduced:
- Statutory Minimums. Generally, there can be no set off to minimum statutory entitlements to termination and severance pay, aside from certain narrow, rarely applicable amounts. * This was articulated in Brake v PJ-M2R Restaurant Inc, 2017 ONCA 402 (CanLII). There, a long-service manager was constructively dismissed after being told to accept a demotion, and the Court awarded 20 months’ reasonable notice. On mitigation, the Court held that income the employee earns during the statutory notice period cannot be deducted from these minimum entitlements.
- Contractual Termination Provisions. Again, sometimes contractual termination provisions provide for separation payments beyond minimum statutory entitlements, particularly for C-suite employees. A well-negotiated contractual termination provision for an employee should provide for a separation package significantly beyond the statutory minimums. Absent clear language to the contrary, there should be no set off for any mitigation income.
- Fixed-Term Employment Contracts. Similarly, damages for breach of a fixed-term contract of employment – which can be based on what the employee would have earned during the balance of the fixed term rather than a common law notice period – are not subject to set off for mitigation income, absent clear language to the contrary. In a leading case in Ontario, Howard v Benson Group Inc, 2016 ONCA 256 (CanLII), the Court of Appeal for Ontario clearly set out that, in the absence of an enforceable contractual provision to the contrary, an employee dismissed prior to the end of a fixed term of employment is owed payment for the balance of the fixed term. There, an employee hired under a written five-year fixed-term contract was dismissed without cause 23 months in, with more than three years left in the term. Because the contract’s early-termination provision was deemed unenforceable, the Court of Appeal held that he was owed his salary and benefits for the balance of the term, and, because those damages flowed from the fixed term rather than a common law notice period, he was under no duty to mitigate. In other words, earnings from new work do not reduce the award, so there is no setoff.
Takeaways for Employees:
- Before accepting an offer of employment or a signing any new employment agreement, obtain legal advice to address, among other things, the termination provisions and assess what may happen at the end of the employment relationship.
- If your employment is terminated, seek legal advice promptly to see if it is appropriate to attempt to negotiate an early resolution of the matter.
- Obtain legal advice about any potential deductions that may inform what would be a reasonable severance package.
| Length of Employment | Minimum Statutory Notice / Termination Pay |
| 3 months but less than 1 year | at least 1 week |
| 1 year but less than 3 years | at least 2 weeks |
| 3 years but less than 4 years | at least 3 weeks |
| 4 years but less than 5 years | at least 4 weeks |
| 5 years but less than 6 years | at least 5 weeks |
| 6 years but less than 7 years | at least 6 weeks |
| 7 years but less than 8 years | at least 7 weeks |
| 8 years or more | at least 8 weeks |
Where an employer terminates the employment of 50 or more employees within any 4-week period, the following enhanced minimum statutory notice periods apply. Again, these are only minimum statutory entitlements.
| Number of Employees | Minimum Statutory Notice |
| 50 to 199 employees | at least 8 weeks |
| 200 to 499 employees | at least 12 weeks |
| 500 or more employees | at least 16 weeks |
If you have any questions about your entitlement, contact Zubas Flett Liberatore Law LLP for counsel at 416-593-5844 or questions@employment-lawyers.ca.