Terminating the employment of an employee prior to the expiry of
a fixed-term employment agreement is often a ticklish issue for an
employer. Thanks to the Ontario Court of Appeal's April 8, 2016
decision in Howard v. Benson Group Inc., 2016 ONCA 256,
one such employer has painfully discovered just how tricky it can
The plaintiff Howard was hired as a "truck shop
manager" by The Benson Group Inc. (Benson) under the terms of
a five year fixed-term employment agreement. The agreement
expressly provided for the early termination of Howard's
employment "at any time in accordance with the
terms" of the agreement. Among those terms was
Benson's right to dismiss Howard without cause, as follows:
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.
Relying on that provision, Benson exercised its right to
terminate with 37 months remaining in the term.
On Howard's summary judgment motion in the Superior Court of
Ontario seeking to have the provision set aside and an order for
the payment of damages based on the balance of the five year term,
the motion judge found that (1) the clause was sufficiently
ambiguous as to be unenforceable, and (2) in the absence of an
enforceable early termination clause, the employer's
obligations were governed by an implied right to reasonable notice
at common law. He went on to order a hearing based on affidavit
evidence (and any cross-examinations on the affidavits) to
determine the "appropriate amount of reasonable notice
having regard to mitigation issues".
On Howard's appeal, the Court of Appeal first determined
that the appropriate standard of review on the "balance of the
fixed term v. reasonable notice" debate was correctness, since
the issue was properly characterized as an "extricable
question of law". It then held that in a fixed-term employment
arrangement, the relationship automatically terminates at the end
of the term without further obligation. If unambiguous, such a
provision ousts the implied term of reasonable notice. The Court
therefore overruled the motion judge on this point and found in
As a result, the Court then decided that it needed to make a
"fresh determination" about the duty to mitigate. Relying
on its previous decision in Bowes v. Goss Power Products
Ltd., 2012 ONCA 425 in which it found that there is no duty to
mitigate when a contract specifies the penalty for early
termination, the Court held that the same principle applies in a
fixed-term agreement when neither early termination nor mitigation
are expressly addressed. Accordingly Benson was held liable to
Howard for the remaining 37 months of the five year term.
What this means for Employers
The underlying facts in Benson are
puzzling, since the need for a five year fixed-term contract for a
"truck shop manager" is not apparent. While certain
businesses lend themselves to fixed-term employment agreements
(e.g. sports, entertainment), an employer should always ask itself:
"why do we want a fixed-term contract in this instance?"
More often than not, the answer will be: "we don't."
An indefinite term agreement with appropriately drafted termination
provisions may well be the better option.
If circumstances dictate the
preference for a fixed-term arrangement, from the employer's
perspective it is critical to build in a "hedge" against
the relationship simply not working out. That hedge should consist
of one of, or ideally both, carefully drafted and enforceable early
termination clauses and an express duty on the part of the employee
to mitigate by diligently seeking new employment.
An employer will want to avoid a Benson without hedges at all
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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