The Ontario Court of Appeal
released a decision last week that
serves as a stark reminder to employers of just how critical a
properly worded employment agreement can be. You can read
CCPartners' recent blogs on the importance of well-drafted
employment agreements here, here and here.
In this case, John Howard
("Howard") was employed at an automotive service centre
in a managerial role earning $60,000 yearly plus benefits. His
written employment agreement was for a five-year term, commencing
in September 2012. Howard's employer, Benson Group Inc.
("BGI") included an "early termination" clause
at section 8.1 of the agreement, stating:
8.1 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
It was BGI's belief that the
early termination clause would allow BGI to terminate Howard's
employment at any time throughout the term of the agreement, as
long as Howard was provided separation pay pursuant to the
Employment Standards Act, 2000 ("ESA"). Based on
that belief, BGI terminated Howard without cause on July 28, 2014 -
23 months into the agreement.
Upon termination, Howard sued for
breach of contract, seeking payment of his salary for the unexpired
portion of the contract: 37 months' salary. It was Howard's
position that the early termination clause was void because it was
overly vague and that it should be struck from the agreement.
Howard argued that if the early termination clause were struck,
then BGI would have no contractual right to terminate Howard's
employment, without cause, prior to the expiration of the
The lower Court agreed that the
early termination clause was void due to the fact that it was
vaguely worded and struck the clause from Howard's agreement.
However, the lower Court did not award him the remedy that he
sought. Instead of 37 months' salary, Howard was awarded common
law damages for wrongful dismissal (likely to have been one to
three months' salary, given Howard's length of service, age
and the nature of his employment). Under the common law, Howard
would have had a duty to mitigate his wrongful dismissal
Howard appealed the lower
Court's decision to Ontario's Court of Appeal.
The main issues on appeal were as
Whether Howard was entitled to
damages representing his salary for the remaining 37 unexpired
months in the term of the contract, rather than the common law
reasonable notice awarded by the lower Court; and
Whether Howard would have a duty
to mitigate his damages if awarded the 37 months of salary
representing the unexpired term of the contract.
The Court of Appeal held that since
the early termination clause was unenforceable and was struck from
the agreement, that when removed, the agreement left BGI with no
contractual right to terminate Howard's employment, without
cause, prior to the expiration of the agreement's term.
Accordingly, the Court of Appeal
awarded Howard the full 37 months' salary plus benefits with no
obligation on Howard to mitigate his damages. At paragraph 44 of
the decision, the Court of Appeal explained why Howard would not
have to mitigate his damages:
 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. Just as parties who contract for a specified period of
notice (or pay in lieu) are contracting out of the common law
approach,... so, too, are parties who contract for a fixed term
without providing in an enforceable manner for any other specified
period of notice (or pay in lieu).
Based on Howard's $60,000
annual salary, BGI will likely have to pay Howard
damages in excess of $200,000, mitigation free.
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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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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