FIXED TERM EMPLOYMENT CONTRACTS – EMPLOYER’S LIABILITY FOR EARLY TERMINATION

February 28, 2017

Howard v. Benson Group Inc., 2016 ONCA 256

Every now and then the Court releases a decision to which employers should pay attention. This is one of them. Let me explain why.

The situation was as follows. The employee signed an employment contract with a five year term. The contract contained provisions relating to its termination, including a provision that the employer could terminate the agreement at any time without cause “and any amounts paid to the (e)mployee shall be in accordance with the Employment Standards Act (“ESA”) of Ontario” (the “ESA Clause”)

The employer terminated the agreement 23 months later alleging cause. The employee sued claiming damages equal to the amounts he would have been paid for the balance of the term of the contract. He moved for summary judgment, but the judge on that motion decided that the employee was entitled to receive common law damages for wrongful dismissal rather than the balance of the contract and that the employee had a duty to mitigate those damages.  He ordered a mini-trial so that the damages could be assessed. The first judge also found that the ESA Clause was unenforceable because it was too vague.

The employee appealed and the Ontario Court of Appeal decided that the employee:

  • was indeed entitled to be paid for the balance of the term of the contract; and
  • did not have an obligation to mitigate his damages by seeking alternate employment during the expired term of the contract.

It is important to note that there was no appeal from the first judge’s finding that the ESA Clause was unenforceable. Therefore, the Court of Appeal did not deal with that issue and made its decision on the basis that the ESA Clause was not part of the contract. In my view, the first judge was probably incorrect on that point because the rights and obligations under the ESA are clearly defined and determinable in any given situation. Had the first judge been overturned on that issue, the outcome on appeal would likely have been quite different.

The Court of Appeal also noted that the contract was drafted by the employer and that employer was “not an unsophisticated party” and, as such, if it wanted the contract to limit its obligations to the employee, it should have been more clear in drafting the terms of the contract.

In my view, that last point is the most significant aspect of this case for employers as it highlights the importance of having clear language in employment contracts. The difficulty though, is that what seems clear in one case, may not be so clear in another.

Jeffrey A.L. Kriwetz
E-mail: jkriwetz@garfinkle.com
Direct Line: 416.869.7618

*Please note: The views expressed in this article are those of the writer and have been provided for information purposes only. Nothing in this article should be relied on as specific legal advice in any particular case. For such advice, please contact the writer directly.

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