Employers often use fixed-term employment agreements to limit
their future severance costs owed to employees. Although that may
be an effective approach in theory, the Ontario Court of
Appeal's recent decision in Howard v. Benson Group
ONCA 256, reminds employers that an improperly
drafted fixed-term employment agreement can be a costly approach in
The Decision of Ontario's Lower Court
In the Howard case, Benson Group Inc. hired Mr. Howard for a
fixed term of five years. Just before two years into the
five-year term, the Company decided to fire Mr. Howard without
cause before the end of the term. It relied on the following
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.
Mr. Howard received two weeks' salary in lieu of
notice. In response, Mr. Howard filed a lawsuit with the Ontario
Superior Court of Justice arguing that the termination provision
was not clear and he should therefore be paid out for the balance
of the term (i.e., just over three years' worth
The court agreed that the termination provision contained
several deficiencies, including that it did not reference benefits
continuation and other minimum entitlements, but it disagreed that
Mr. Howard should be paid out for the balance of the term. Rather,
the court concluded that the termination provision, albeit
unenforceable, qualified the five-year term. In its
view, Mr. Howard was therefore entitled to reasonable notice
of termination at common law and ordered a separate mini-trial to
determine how much common law notice he would receive.
The Decision of the Ontario Court of Appeal
Mr. Howard was unhappy with the lower court's decision and
decided to appeal. The main issues before the Ontario Court of
If a fixed-term employment agreement is ended early and it does
not have an enforceable early termination provision, should the
employee get (a) reasonable notice at common law or (b) as Mr.
Howard argued, to be paid out for the remainder of the fixed
Should any payments for the remainder of a fixed term require
the employee to mitigate by finding new work?
On the first issue, the Court of Appeal concluded that option
(b) was the right approach. In the Court's view, a fixed term
rebuts the presumption of reasonable notice at common law by
providing a clear end date of employment.
On the second issue, the Court of Appeal noted that although
employees have a duty to mitigate and that duty will be taken into
account when determining a common law notice award, employees
working under fixed-term agreements do not have that same duty to
mitigate unless the agreement specifies otherwise. Mr. Howard's
employment agreement did not specify that Mr. Howard had a duty to
As such, the Court of Appeal concluded that Mr. Howard was
entitled to be paid out for the remaining three years in the
five-year term and that this payout should not be discounted based
on Mr. Howard's mitigation efforts. This was a very costly
result for the Company especially since Mr. Howard would likely
have received far less notice at common law had his employment
initially been for an indefinite term rather than a fixed term.
Key Takeaways for Ontario Employers
Although Howard is not a novel case, it is an important reminder
for employers to make sure of the following when using fixed-term
Draft a fixed-term employment agreement with an "early
out" provision. That way, if you want to dismiss an employee
without cause before the end of a fixed term, you can do so while
avoiding having to paying out the remainder of the term.
Make sure the "early out" provision complies with the
applicable employment standards legislation otherwise it will be
Include a saving provision in the fixed-term employment
agreement that confirms the applicable employment standards
legislation governs to try and remedy any real or potential
conflict between the fixed-term employment agreement and that
Consider including a duty to mitigate clause into the
fixed-term employment agreement.
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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