Fixed-Term Employment Contracts are a Bad Idea

Apr 19, 2016

I do not like fixed-term employment contracts and have written a number of blogs  on this topic. This blog summarizes a recent decision of the Ontario Court of Appeal that reinforces my aversion to fixed-term contracts.

Facts

Mr. Howard signed a written employment contract with a five-year term and 23 months later his employer, Benson Group Inc., terminated his employment without just cause. The employer’s right to terminate the contract early without cause was governed by the following clause in the contract: “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 trial judge found this clause was unenforceable because it was ambiguous. For the life of me, I do not know why this finding was not appealed to the Court of Appeal but it wasn’t.

Legal issues

  1. Was Mr. Howard entitled to (i) 37 months’ notice of termination (which was the balance of the 5 year contract), or (ii) “reasonable notice of termination” based on his age, length of service, position and the availability of comparable employment given his education and experience?
  2. Was Mr. Howard required to look for alternative employment during the applicable notice period and if he finds alternative employment is the income earned during the notice period deducted from damages otherwise payable?

Decision

  1. Howard was entitled to receive 37 months’ notice of termination. The Court of Appeal concluded: “…the Employment Contract is sufficiently clear to oust the common law presumption of reasonable notice on termination. It follows that the appellant (Mr. Benson) is entitled to the compensation that he would have earned to the end of the Employment Contract.”
  2. Howard had no obligation to seek alternative employment during the 37 months following his termination and if he did find employment during this time then any income he earned should not be taken into account when calculating damages. In this regard, the Court of Appeal stated: In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation.”

Lessons to Be Learned

  1. It is generally a very bad idea to ask an employee to enter into a fixed-term contract.
  1. In the exceptional cases when a fixed-term contract is used, make sure to include an unambiguous early termination clause.
  1. In the exceptional cases when a fixed-term contract is used, make sure to include a clause which requires the employee to mitigate his damages if the contract is terminated early.

For more than 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship including employment contracts. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

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