Starting A Business After Dismissal

When employment is terminated without just cause, the employee is entitled to notice of the termination or pay in lieu of notice (damages for wrongful dismissal). Normally, an employee is given pay in lieu of notice. How much or how that “pay” is calculated is based on the facts of each case and applicable legal principles. One such legal principle is known as “mitigation”. Mitigation means, in English, cutting your losses or in the case of wrongful dismissal damages, replacing your income. The law requires that you make reasonable and diligent efforts to mitigate or cut your losses as soon as possible after being fired.

Most employees after being fired immediately begin a job search. They register at the local Employment Insurance office and head hunters. They prepare a resume, answer advertisements, call companies, utilize Internet job banks or register at casual labor companies. These efforts are normally considered by Courts to be “reasonable and diligent”. Thus, an employee engaging in this type of mitigation effort will not normally be found to have failed to mitigate. Failing to mitigate will adversely affect the amount of damages for wrongful dismissal awarded at trial.

But, what does the Court say about an employee who decides to open his/her own business after being terminated from employment? Does this qualify as “mitigation” sufficient to avoid being found by a Court to have “failed to mitigate?” Afterall, opening a business is a slow process as it normally takes a long time to realize a profit from a new business.

A general review of the caselaw on this area indicates that Courts will in many instances, find that starting a business after dismissal is an acceptable form of mitigation. This however, is entirely dependent upon the facts of the case. For example, where the employee is older or possesses specialized skills that may not be marketable, the Courts usually are satisfied with this. Conversely, if the market place is shown to have plenty of opportunities for the employee, the Court may find that starting a business was unreasonable. In one case, an employee failed to establish that a business had prospects of success and was disallowed a claim for expenses in starting the business.

If a Court finds that an employee has failed to mitigate the Court may adjust the amount of damages that would otherwise be awarded. It is therefore wise to consult an employment lawyer upon being terminated from your employment. One of the issues to be discussed is how you plan to mitigate or replace your income. Whatever ideas you have in that regard should be shared with your lawyer who will then advise you as to whether that would be suitable in your situation.

As each case is decided upon its own facts, please call me to discuss your situation. We will then discuss your plans to replace your income.