A recent decision of the Ontario Superior Court of Justice,
John Howard v. Benson Group Inc. 2015 ONSC 2638, has given
employers some helpful guidance on ending fixed term agreements
with employees. The plaintiff in this case, Mr. Howard, had entered
into an employment agreement with the defendant stating that the
term of his employment was five years, commencing in September of
2012. On July 28, 2014, the defendant terminated Mr. Howard's
employment with just over three years left in the term. The
defendant gave Mr. Howard two weeks of severance pay, which it
claimed fully satisfied Mr. Howard's entitlements under the
employment agreement. Mr. Howard disagreed and commenced an action
seeking payment of the remaining term. He then brought a motion for
summary judgment on the interpretation of his employment
Although the agreement stated that it was for a five year term,
it also contained a termination clause stating that it could 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 defendant relied on this
clause to support its position that Mr. Howard was only entitled to
the minimum notice prescribed by the Employment Standards Act,
The plaintiff countered by arguing that the clause was void
because it had three crucial ambiguities. First, it did not
state specifically what was meant by the term "amounts
paid." Did this include benefits and bonuses as required
by the ESA? The plaintiff said that it was unclear and that the
requirement in the ESA to provide benefits continuation could not
be satisfied by payment of any amount of money, which meant that
the termination clause fell below the minimum standards prescribed
by the ESA. Second, counsel for Mr. Howard argued that the phrase
"any amounts" gave rise to a possible interpretation that
any payments were at the discretion of the defendant. This would
also be a violation of the ESA. And finally, counsel for Mr. Howard
argued that the it was unclear as to whether the amounts paid out
under the termination clause were intended to be in total
satisfaction of any claim that Mr. Howard may have in respect of
the termination of his employment.
The defendant obviously disagreed with the plaintiff regarding
the ambiguity in the termination clause but also advanced an
alternative argument; even if the termination clause was void, the
very fact that it had been included in the employment agreement
meant that the parties intended that the fixed term could be
terminated prior to its expiry. As a result, if the termination
clause is unenforceable then the remedy should be to give the
plaintiff common law reasonable notice of termination and not the
remaining term of the agreement.
The Court accepted Mr. Howard's position that the
termination clause was not sufficiently clear and unambiguous to
limit Mr. Howard's claim to the minimums prescribed by the ESA.
However, it rejected Mr. Howard's claim that this meant that he
should receive payment for the balance of the term of the contract.
Instead, it found that the presence of an early termination clause
- even one that was otherwise unenforceable - had the effect of
qualifying the five year term. Accordingly, Mr. Howard was entitled
to reasonable notice of termination based on the relevant
Bardal factors. The Court found that it required further
evidence to determine the appropriate notice period for Mr. Howard
and ordered that the parties present affidavits addressing relevant
factual issues to be considered.
This case provides some helpful guidance on both what the Court
will look for in determining the enforceability of a termination
clause in an employment agreement and also on how the presence of
an early termination clause, however imperfect, can save the
employer from the often unwelcome consequences of ending a fixed
term agreement before the completion of its original term.
Employers who wish to make use of fixed term agreements should read
this case carefully and review their template contracts to ensure
that they have the best possible protections.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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