Damages Calculation — Ontario Employment Law
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About Damages Calculation
When an Ontario employer terminates an employee without providing sufficient notice or pay in lieu, it can lead to a wrongful dismissal claim. The primary remedy in such cases is an award of “damages,” but what does that actually mean? The goal of damages calculation is not to punish the employer, but to put the employee in the same financial position they would have been in if they had been allowed to work through a proper reasonable notice period. The core formula is straightforward: (Total Monthly Compensation) x (Months of Notice) – (Mitigation Income).
The most common mistake employees make is thinking that damages are based only on their base salary. Under Ontario common law, the calculation must include all forms of compensation and benefits that were part of the employment package. This comprehensive view of compensation is crucial. It includes not just your salary or hourly wage, but also variable pay like commissions and bonuses (often calculated based on historical averages), car allowances, the value of group health and dental benefits, employer contributions to a pension or RRSP, and the value of lost stock options or other perquisites. For example, if you lost access to a company pension plan, the damages would include the contributions the employer would have made during the notice period.
From this total amount, two main things are deducted. First, any termination pay or severance pay already provided by the employer under the Employment Standards Act, 2000 (ESA) is subtracted. Second, any income earned from a new job during the notice period (known as mitigation) is also deducted. It is important to distinguish these compensatory damages from other types, such as aggravated or punitive damages, which are awarded for separate reasons like bad faith conduct during the dismissal and are calculated differently. Because determining the full value of a compensation package can be intricate, especially with variable pay or complex benefits, a detailed review is often necessary to ensure the final calculation is fair and accurate.
Frequently Asked Questions
How are my lost health and dental benefits calculated as part of damages?
Courts typically calculate the value of lost benefits in one of two ways: either by awarding the amount the employer would have paid in premiums to keep you covered during the notice period, or by reimbursing you for the out-of-pocket medical expenses you incurred that would have been covered by the plan.
My bonus was 'discretionary'. Can I still claim it in my damages calculation?
Yes, often you can. If a bonus has been consistently paid in the past, courts may find it was an integral part of your compensation, even if labelled 'discretionary'. The calculation would likely be based on the average bonus you received in the years prior to your dismissal.
What's the difference between ESA termination/severance pay and wrongful dismissal damages?
ESA pay is a statutory minimum entitlement based on a formula in the Employment Standards Act, 2000. Wrongful dismissal damages are a common law entitlement based on a reasonable notice period, which is usually much longer and includes your full compensation package. ESA amounts are a floor, not a ceiling, and are deducted from any common law damages awarded.
Do I have to pay taxes on a wrongful dismissal damage award?
Yes, the portion of the award that represents lost income is considered a 'retiring allowance' and is taxable. However, it is not subject to deductions like EI or CPP. The portion that is a direct reimbursement for legal fees or for certain other types of damages may not be taxable. It's wise to consult with a tax professional.
How long do I have to make a claim for wrongful dismissal damages in Ontario?
Under Ontario's Limitations Act, you generally have two years from the date you knew or should have known you had a claim, which is typically the date of your termination. It is critical to act within this timeframe or you may lose your right to sue.
My employer's severance offer only uses my base salary. When should I see a lawyer?
You should seek legal advice immediately. An offer based only on base salary likely undervalues your claim, as it omits other key components of your compensation like bonuses, benefits, and pension contributions. A lawyer can help you calculate the full value of what you are owed.
Common Scenarios
- A sales director is terminated and the initial severance offer fails to account for the substantial commissions they would have earned during their 18-month notice period.
- A long-service technician is let go, and the termination package doesn't include the value of the employer's matching RRSP contributions that are now lost.
- A marketing manager who always receives an annual performance bonus is dismissed in January, and the employer's offer neglects to include a pro-rated amount for the previous year's work.
- An employee is terminated and the employer offers to pay for their health benefits for three months, but their reasonable notice period is determined to be nine months, creating a gap in the damages calculation.
- An executive is dismissed and their package omits the value of perquisites like their car allowance and professional development budget, which were integral parts of their compensation.
What You Should Know
- Gather all documents related to your compensation before and after termination, including pay stubs, bonus letters, commission statements, benefits booklets, and records of income from any new work.
- Do not assume a severance offer is fair just because it seems like a large number. Always break it down to see if it accounts for all parts of your compensation, not just salary.
- Understand that statutory pay under the Employment Standards Act, 2000 is just the minimum. Your common law entitlements, which form the basis of a damages calculation, are often significantly higher.
- If your compensation package was complex (e.g., including stock options, variable bonuses, or a pension), it is crucial to have it professionally assessed to ensure the damages calculation is accurate.
- When a severance offer is presented, seeking advice from an employment lawyer can help you understand the true value of your claim and whether the employer's calculation is correct and complete.
Featured Cases
K. v. GoEasy Ltd
2026 ONSC 4238 (CanLII) · 2026-07-21Wrongful Dismissal: RSU Dividends Included in Severance
This is a post-judgment procedural ruling regarding the calculation of damages in a wrongful dismissal case. The court issued supplemental reasons to clarify that dividends flowing from a granted RSU are part of the plaintiff's Long-Term Incentive Plan award, rejecting the defendant's objection to their inclusion in the damages calculation.
H. v. Christie & Walther Communications Limited
2020 ONSC 7214 (CanLII) · 2020-11-25Wrongful Dismissal: 12-Month Notice and Mitigation
This wrongful dismissal case addressed the calculation of damages for a 12-month notice period, specifically focusing on the plaintiff's duty to mitigate. The court found that the plaintiff's rejection of a final employment offer from a successor employer was unreasonable and constituted a failure to mitigate, while also determining that self-employment income fully offset remaining damages.
K. v. Gard-X Automotive Refinish Inc.
2020 ONSC 37 (CanLII) · 2020-01-06Wrongful Dismissal: Mitigation and Overtime Earnings
This is an appeal from a trial judge's decision in a wrongful dismissal case involving an employee dismissed with three months' working notice. The Divisional Court addressed whether the trial judge erred in calculating damages by excluding overtime earnings from the employee's new employment and whether surplus earnings reduced damages for a period of unemployment. The appellate court reversed the trial judge's decision, holding that all earnings from replacement employment should apply as mitigation.
Evans v. Paradigm Capital Inc.
2018 ONCA 952 (CanLII) · 2018-11-27Appeal: 11 Months' Notice Upheld, Bonus Overturned
This is an appeal from a wrongful and constructive dismissal trial decision regarding the calculation of damages and the reasonableness of the notice period. The Court of Appeal addressed whether the trial judge properly calculated damages for performance and shareholders' bonuses, whether the employee was required to mitigate by accepting a revised role, and whether the 11-month notice period was reasonable. The court upheld the substantive findings on notice and the performance bonus, but found the trial judge erred in awarding the shareholders' bonus, and vacated the costs decision to allow for reconsideration.
F. v. Mitsche & Aziz Inc.
2018 ONSC 6021 (CanLII) · 2018-10-11Fixed-Term Employment: Unilateral Hour Reduction Damages Appeal
An appeal to the Divisional Court from a small claims court decision regarding a fixed-term employment contract where the employer unilaterally reduced the employee's hours. The court upheld the trial judge's assessment of damages for the unexpired portion of the contract, finding no palpable and overriding error in the calculation of estimated annual income and mitigation earnings.
D. v. Imperial Oil Limited
2018 ONSC 4345 (CanLII) · 2018-07-13Wrongful Dismissal: Pension & Benefits Damages
This wrongful dismissal case addressed the quantification of damages regarding pension contributions, savings plan contributions, and loss of employment benefits. The court applied IBM Canada Limited v. Waterman principles to determine that no damages were awarded for pension contributions where no pension loss occurred, but plaintiffs were entitled to damages for Savings Plan contributions and lost benefits.
C. v. Purdue Pharma Inc.
2015 ONSC 1967 (CanLII) · 2015-03-25Wrongful Dismissal: 22.5-Year Employee Awarded 24 Months Notice
This wrongful dismissal case involved a senior employee with 22½ years of service at a pharmaceutical company who was terminated. The court applied the Bardal factors to determine reasonable notice, awarding 24 months. The decision also addressed the calculation of damages, including awarding a 2% salary increase during the notice period, accepting the plaintiff's method for bonus calculation due to the defendant's lack of evidence, and adopting a trust approach for post-judgment earnings.
L. v. Chatten's Better Hearing Service
2013 ONCA 781 (CanLII) · 2013-12-20L. v. Chatten's: Wrongful Dismissal Appeal
This is an appeal from a trial judge's decision in a wrongful dismissal case where the employer unilaterally changed the employee's terms, constituting a termination. The Court of Appeal upheld the finding that the employer terminated the employment and rejected the employer's argument that the employee failed to mitigate damages by remaining in the new position. The court also affirmed the trial judge's calculation of damages based on the written employment contract and declined to increase the award without a cross-appeal.
A. et al v. S. et al
2012 ONSC 6295 (CanLII) · 2012-11-05Wrongful Dismissal: Common Employer Liability & Damages
This wrongful dismissal case addressed whether defendants constituted a common employer liable for dismissing a business without notice or severance pay. The court applied the common employer doctrine to hold defendants jointly and severally liable, rejected the plaintiffs' proposed formula for damages in favor of a reasonableness assessment, and found the plaintiffs' mitigation efforts reasonable.
B. v. Niagara Motors Limited
2009 ONCA 887 (CanLII) · 2009-11-18Wrongful Dismissal: Employment Gap and Wallace Damages Appeal
This is an appeal from a wrongful dismissal trial decision involving an employee with a two-year employment gap who was invited back by the employer. The Court of Appeal upheld the trial judge's finding that the gap should not affect the calculation of length of service for severance purposes. However, the court overturned the award of Wallace damages for mental distress, finding that the employee had not sought medical attention or therapy despite the employer's improper conduct.
D. v. Advanis Inc.
2009 CanLII 23869 (ON SC) · 2009-05-12Wrongful Dismissal: VP Terminated After 4 Years
A wrongful dismissal case involving a Vice President and Executive Vice-President who was terminated after nearly four years of employment. The court applied the Bardal factors to determine whether 12 months constituted reasonable notice, and assessed damages based on base salary and projected variable compensation. The employer was found not to have acted in bad faith, and the termination was deemed to be motivated by financial losses and restructuring, not disability or immigration status.
A. v. Brook Crompton North America
2008 CanLII 27469 (ON SC) · 2008-06-06Wrongful Dismissal: 22.5-Year Employee Awarded Damages
A wrongful dismissal case where the plaintiff was dismissed without cause after 22.5 years of service. The employer provided four months’ salary and benefits, but the plaintiff sought damages for 16 months’ notice. The court applied the Bardal factors to determine reasonable notice and awarded damages for salary, benefits, pension contributions, and bonus. The court also addressed the plaintiff’s mitigation efforts and granted summary judgment as no genuine issue for trial existed.
C. v. Symcor
2007 CanLII 35147 (ON SC) · 2007-04-12Wrongful Dismissal: Equity Interest Damages and Post-Termination Discovery
A wrongful dismissal case where the plaintiff claimed damages for a 10% equity interest in the employer company. The court addressed whether damages should be assessed at the date of breach or trial, and whether the defendants’ motives and conduct in termination were relevant to punitive damages. The case also involved discovery of post-termination financial information and the relevance of employee compensation plans as comparables.
W. v. Casey's Welding Service Ltd.
2007 CanLII 6937 (ON SC) · 2007-03-12Wrongful Dismissal: Pre-Judgment Interest Calculated on Installment Basis
A wrongful dismissal case involving a dispute over the calculation of pre-judgment interest on lost salary, with the court adopting an installment approach to reflect actual loss and mitigation earnings.
M. v. Brantpack Distributing Ltd.
2006 CanLII 23262 (ON SC) · 2006-06-28Wrongful Dismissal: 61-Year-Old Employee Awarded 9 Months Notice and $66,973 in Damages
A wrongful dismissal case where the plaintiff, terminated at age 61, was awarded nine months' reasonable notice. The court applied the Wallace framework to assess employer conduct and determined that no extension of notice was warranted due to lack of malicious intent. The plaintiff was also awarded $66,973 in damages for salary, car benefits, and bonuses during the notice period.
M. v. Kenmara Inc.
2006 CanLII 4902 (ON SC) · 2006-02-20Constructive Dismissal: Hostile Work Environment Leads to Damages Award
A constructive dismissal case where the plaintiff alleged a hostile work environment due to the employer's abusive conduct, including foul language and threats. The court found the employer's actions created an intolerable work environment, leading to constructive dismissal. The plaintiff was awarded four months' salary in damages, including an additional month under the Wallace principle.
H. v. 331265 Ontario Ltd.
2005 CanLII 12852 (ON SC) · 2005-04-20Wrongful Dismissal: 14-Year Stockroom Keeper Awarded 8 Months Notice
A wrongful dismissal case involving a plaintiff employed for over 14 years as a stockroom keeper who was dismissed without cause. The court applied the Bardal factors to determine an 8-month notice period and awarded damages of $6,728 after considering mitigation of losses and statutory deductions. The plaintiff's physical limitations from a workplace injury were considered but did not affect the assessment of reasonable notice.
S. v. National Bank Financial Inc.
2004 CanLII 880 (ON SC) · 2004-06-30Wrongful Dismissal: Options Trader Seeks 12 Months Notice and Damages
A wrongful dismissal case involving an options trader who was terminated without cause after four years of service. The court assessed the reasonable notice period using the Bardal framework and determined whether 12 months was appropriate. The case also addressed the calculation of damages based on historical average income and the recoverability of out-of-pocket expenses incurred during the notice period, including medical and job search costs. The court also considered whether an employer could set off a negative balance in a drawings account against wrongful dismissal damages.
D. v. CDA Industries Inc.
2004 CanLII 7896 (ON SC) · 2004-03-22Wrongful Dismissal: 21-Year Foreman Awarded 18 Months Notice
A wrongful dismissal case involving a plaintiff employed for 21 years as a foreman who was terminated at age 57 without prior warning. The court determined 18 months’ notice was reasonable, applied the Bardal factors, and calculated total compensation for 18 months at $108,495, less amounts already paid. The court also found the plaintiff’s efforts to mitigate damages were reasonable.
D. v. 1374202 Ontario Inc.
2003 CanLII 38391 (ON SC) · 2003-06-10Constructive Dismissal: Commission Non-Payment and Issue Estoppel
A constructive dismissal case where the plaintiff alleged non-payment of commissions constituted a substantial breach of contract, leading to his constructive dismissal. The defendant denied any agreement existed and claimed the plaintiff voluntarily left. The court considered whether issue estoppel applied due to a prior Employment Insurance Commission determination and whether a contractual obligation to pay commissions existed.