Double Check The Provisions Before You Sign A Fixed-Term Employment Contract

The Ontario Court of Appeal has ruled that a fixed-term employment contract that does not include a legally enforceable termination provision cannot be terminated before the end of the fixed term. This means that an employer who wrongfully dismisses an employee with a fixed-term contract could be responsible to pay the employee's salary until the end of the contract. Additionally, the Court of Appeal ruled that the employee has no duty to mitigate damages. In other words, the employee could find another job and collect his or her salary from both employers.

The case, Howard v Benson Group Inc., involved a 57 year old employee of an automotive service center who entered into a five-year employment contract. Twenty-three months into the employment, the employer dismissed the employee without cause. The contract itself included provisions on termination, specifically that the employee could terminate employment, the employer could terminate the employment for cause or, as was the case here, "Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario."

The summary judgment motion's judge ruled the provision unenforceable due to ambiguity. This meant that the employer had no basis to terminate the employee and was liable to pay the employee's wages for another three years and one month.

The court then evaluated whether the employee had a duty to mitigate his damages. Importantly, it ruled that in a fixed-term contract there was no such duty. The employee was not required to seek other employment. Nor was the assessment of damages dependant on monies made by the employee.

The Lesson for Employers: Make sure that all fixed-term contracts include an enforceable provision allowing for early termination and also a provision requiring the employee to mitigate damages should early termination occur.

The Lesson for Employees: Before entering a fixed-term contract take a second look at any termination provisions to ascertain what your rights and obligations will be if the contract is terminated early. This can be a key issue in negotiations and overlooking it could be to your detriment.

Howard v Benson Group Inc., 2016 ONCA 256 https://www.canlii.org/en/on/onca/doc/2016/2016onca256/2016onca256.pdf

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