In a decision released on April 8, 2016, Ontario's Court of
Appeal (the "Court") provided guidance which will be
particularly useful for employers considering entering into
fixed-term employment contracts. Specifically, the Court in
Howard v. Benson Group Inc. (The Benson Group Inc.) 2016
ONCA 256 examined the enforceability of termination provisions in a
fixed-term contract and an employee's entitlement to damages
where the termination provision is ruled unenforceable.
John Howard entered into a five-year fixed-term contract with
Benson Group Inc. ("Benson") starting in September 2012.
Benson terminated Howard's employment, without alleging cause,
23 months later. Howard commenced an action for breach of contract
and brought a motion for summary judgment seeking compensation for
the unexpired portion of the contract — more than three
years' salary. The motion was granted, but the judge only
awarded common law damages for a reasonable notice period, not for
the remainder of the fixed-term.
Howard appealed the decision. The primary question raised on
appeal was whether an employee who is employed under a fixed-term
contract that does not have an enforceable early termination
without cause provision, is entitled to payment of the unexpired
portion of the contract upon early termination of the contract. The
Court concluded that the motion judge erred in holding that Howard
was only entitled to common law reasonable notice damages.
The parties did not contest that the termination provision found
in Howard's employment agreement was unenforceable. The Court
confirmed that if the parties to a fixed-term contract do not
specify a pre-determined notice period (or if the clause specifying
that is unenforceable), then an employee is entitled on early
termination to the wages the employee would have received to the
end of the term. In this case, the fact that the without cause
termination provision was unenforceable had no effect on the clear
and unambiguous intention of the parties to enter into a five-year
agreement. Further, the Court underscored that Benson was a
sophisticated party that had drafted the contract. With this in
mind, the Court concluded that Howard was entitled to the
compensation he would have earned to the end of the employment
The Court also considered whether Howard had a duty to mitigate
his damages. It concluded that, "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 obligated an employer to pay an employee to the
end of the term, and that obligation will not be subject to
mitigation." The Court reasoned that, by contractually fixing
a term to the contract, the parties had also agreed to fix damages
or the length of reasonable notice to terminate the contract. Given
this agreement between the parties and barring any contractual
language related to mitigation, there was no obligation on the
employee to mitigate his damages.
The Court's decision in this case reaffirms the importance
of carefully drafting termination provisions in employment
agreements. Failure to draft enforceable termination provisions
and/or explicitly contemplate an employee's duty to mitigate in
a fixed-term contract may lead to an award for damages against an
employer that are well in excess of what would have been the
employee's entitlements to reasonable notice at common law.
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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