Law Times

Law Times • June 5, 2017 Page 7 www.lawtimesnews.com Deductions on mitigation incomes BY NIKOLAY Y. CHSHERBININ A recent Ontario Court of Appeal decision provides a useful road map for employers and their ad- visors regarding the deductibili- ty of various incomes that wrongfully dis- missed employees could earn during their statutory and reasonable notice periods. In a wrongful dismissal action, an em- ployer is generally entitled to a deduction on income earned by the dismissed em- ployee from other sources during the rea- sonable notice period. In Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402 (see page 1), the Ontario Court of Appeal reaf- firmed that not every mitigation income is subject to deduction. It reminded that statutory entitlements are not damages and not subject to mitigation. The court also explained that neither an employ- ment income earned during the statutory notice nor employment insurance ben- efits is deductible from wrongful dismissal damages. Notably, the court concluded that when an employee is forced to accept a substantially inferior position because no comparable position is available, the amount earned in that position is also not deductible. In Brake, 62-year-old Esther Brake worked at various McDonald's restau- rants for more than 25 years. In 2004, Mc- Donald's promoted Brake to a restaurant manager, where she earned approximately $63,000 per year in total compensation. From 2000 to 2010, Brake received an overall rating of "excellent" in her annual evaluations. Following her reassignment to a more challenging loca- tion, in April 2012, McDon- ald's rated her performance as "needs improvement" and placed her in its progressive discipline program. Dur- ing the Aug. 2, 2012 meeting, Brake was told she failed the program and that she had a choice between a demotion to first assistant and dismissal. Brake refused the demotion, because it meant she would be reporting to a younger and less experienced man whom she trained and supervised. She left the meeting embarrassed and humiliated, and she never returned. Subsequently, Brake sued for con- structive dismissal and was awarded $104,499.33 in damages, representing 20 months' compensation in lieu of notice, inclusive of statutory entitlements. McDonald's appealed, arguing that Brake's refusal to accept the position as a first assistant amounted to a failure to mitigate and, thereby, disentitled her of damages. In addition, it asserted the trial judge erred in failing to reduce the dam- ages award by the amounts Brake received during the notice period. In dismissing the first ground of ap- peal, Justice Eileen Gillese found no pal- pable and overriding error in the trial judge's conclusion that it would have been unreasonable to expect Brake to accept demotion and continue working for Mc- Donald's in an atmosphere of embarrass- ment and humiliation. In respect of the deduct- ibility of mitigation income, Gillese reminded that an em- ployee who is dismissed with- out reasonable notice is en- titled to damages for breach of contract based on the employ- ment income the employee would have earned during the reasonable notice period, less amounts received in mitiga- tion of loss during the notice period. This general statement of principle aside, Gillese re- fused to reduce the damages award by the amounts Brake received during the notice period because, in her view, they "were not amounts received in mitigation of loss." Dealing with the deductibility of EI benefits, Gillese observed that it is settled law that EI benefits are not to be deducted from the damages award because an em- ployer ought not to profit from the ben- efits payable to an employee. With respect to the deductibility of income earned during the statutory no- tice period, Gillese reminded that the statutory entitlements are not damages and, thus, are not subject to mitigation. Instead, these entitlements are minimum sums that are to be paid by McDonald's even if Brake secured a new full-time job the day after her dismissal. By subjecting the statutory entitlements to reduction by reason of mitigation removes their charac- ter as "minimum." Therefore, the income Brake earned during her statutory notice period is not subject to deduction as miti- gation income. While working at McDonald's, Brake simultaneously worked as a part-time ca- shier at Sobey's, a fact that was known to McDonald's. Gillese refused to deduct the income Brake earned from Sobey's dur- ing the reasonable notice period, because had she remained in McDonald's employ, she would have continued to supplement her income through her employment at Sobey's. In her concurring judgment, Justice Kathryn Feldman opined that when a wrongfully dismissed employee can only find a much inferior position that is not comparable in either compensation or responsibility to the managerial position she held with the employer, the employee is entitled to turn it down, and if she does, the amount she could have earned is not deductible from the damages award. If she accepts it, the amount she earns in that position is not mitigation income and need not be deducted from the dam- ages award. This case highlights how the issue of deducting incomes always depends on the trial judge's assessment of mitigation. The burden lies on the employer to prove that the employee has failed in her duty to miti- gate and is by no means a light one. LT uNikolay Chsherbinin is an employment and immigration lawyer and author of The Law of Inducement in Canadian Employment Law. He can be reached at 416-907-2587 or by visiting nclaw.ca. Lawyers need to keep up with AI BY CAROLE PIOVESAN F or decades, novelists, scientists, mathem- aticians, futurists and science fiction enthusi- asts have imagined what an automated society might look like. Artificial intelligence, or AI, is rapidly evolving, and the society we could only once im- agine may be on the brink of becoming our new reality. Simply, and generally, AI refers to the ability of a com- puter system to complete increasingly complex tasks or solve increasingly complex problems in a manner sim- ilar to intelligent human behaviour. Examples range from IBM's Watson system that, in 2011, won a game of Jeopardy! against two former winners to emerging tech- nologies fuelling the development of driverless cars. AI is expected to have a profound impact on soci- ety, whereby intelligent systems will be able to make independent decisions that will have a direct effect on human lives. As a result, some countries are consid- ering whether intelligent systems should be considered "electronic persons" at law, with all the rights and responsibilities that come with personhood. Among the questions related to AI with which the legal profession is starting to grapple: Should we create an independent regulatory body to govern AI systems? Are our existing industry-specific regulatory regimes good enough? Do we need new or more regulation to prevent harm and assign fault? While we are at least a few steps away from mass AI integration in society, there is an immediate ethical, legal, economic and political discussion that must ac- company AI innovation. Legal and ethical questions concerning AI systems are broad and deep, engaging issues related to liability for harm, appropriate use of data for training these systems and IP protections, among many others. Governments around the world are mobilizing along these lines. The Japanese government announced in 2015 a "New Robot Strategy," which has strengthened collaboration in this area between industry, the govern- ment and academia. Late last year, the United Kingdom created a parlia- mentary group — the All Party Parliamentary Group on Artificial Intelligence — mandated to explore the impact and implications of artificial intelligence, in- cluding machine learning. Also late last year, under the Obama administration, the White House released the reports, Artificial Intelligence, Automation, and the Economy" and "Preparing for the Future of Artificial Intelligence." The reports consider the challenge for policymakers in updating, strengthening and adapting policies to respond to the economic effects of AI. In February 2017, the European Parliament approved a report of its Legal Affairs Committee calling for the review of draft legislation to clarify liability issues, espe- cially for driverless cars. It also called for consideration of creating a specific legal status for robots, in order to establish who is liable if they cause damage.Most re- cently, the Canadian federal government announced substantial investments in a Pan-Canadian Artificial Intelligence Strategy. These investments seek to bolster Canada's technical expertise and to attract and maintain sophisticated talent. Lawyers can play a valuable role in shaping and informing discussion about the regulatory regime needed to ensure responsible innovation. Ajay Agrawal, Founder of the Creative Destruction Lab and Peter Munk Professor of Entrepreneurship at the University of Toronto's Rotman School of Manage- ment, says Canada has a leadership advantage in three areas — research, supporting the AI startup ecosystem and policy development. The issue of policy develop- ment is notable for at least two reasons. First, one of the factors affecting mass adoption of AI creations, especial- ly in highly regulated industries, is going to be the regu- latory environment. According to Agrawal, jurisdictions with greater regulatory maturity will be better placed to attract all aspects of a particular industry. For instance, an advanced regulatory environment for driverless cars is more likely to attract other components of the indus- try (for example, innovations such as tolling or parking). Second, policy leadership plays to our technical strength in AI. We are home to AI pioneers who con- tinue to push the boundaries of AI evolution. We can lead by leveraging our technical strengths to inform serious and thoughtful policy debate about issues in AI that are likely to impact people in Canada and around the world. Having recently spoken with several Canadian AI innovators and entrepreneurs, I have identified two schools of thought on the issue of regulating AI. The first is based on the premise that regulation is bad for innovation. Entrepreneurs who share this view don't want the field of AI to be defined too soon and certain- ly not by non-technical people. Among their concerns are the beliefs that bad policy creates bad technology, regulation kills innovation and regulation is prema- ture because we don't yet have a clear idea of what it is we would be regulating. The other school of thought seeks to protect against potentially harmful creations that can spoil the well for other AI entrepreneurs. Subscribers to this view be- lieve that Canada should act now to promote existing standards and guidelines — or, where necessary, create new standards — to ensure a basic respect for the gen- eral principle of do no harm. Policy clarity should co- alesce in particular around data collection and use for AI training. Canada, home to sophisticated academic research, technical expertise and entrepreneurial talent, can and should lead in policy thought on AI. Our startups, es- tablished companies and universities all need to talk to each other and be involved in the pressing debate about the nature and scope of societal issues resulting from AI. As lawyers, we need to invest in understanding the technology to be able to effectively contribute to these ethical and legal discussions with all key stakeholders. The law is often criticized for trailing technology by de- cades. Given the pace of AI innovation and its potential implications, we can't afford to do that here. LT uCarole Piovesan is a litigation lawyer at McCarthy Tétrault LLP with a focus on commercial disputes. u SPEAKER'S CORNER COMMENT Labour Pains Nikolay Y. Chsherbinin

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