In May of last year we gave our readers an update on a recent
Ontario decision regarding early termination of a five year fixed
contract, Howard v. Benson Group Inc. Mr.
Howard's employment was terminated without cause after only 23
months of service. He brought a claim for payment of the
remaining 37 months of the term. Justice MacKenzie of the
Ontario Superior Court of Justice was asked to determine on a
motion for summary judgment whether an early termination clause in
a five year term agreement was enforceable and if not, what damages
were owed to the plaintiff? Was he entitled to payment for
the remaining term of the agreement or would it suffice for the
employer to give him reasonable notice of termination? At a
motion for summary judgment, MacKenzie J. found that the without
cause termination clause was ambiguous and thus not sufficient to
limit Mr. Howard to his Employment Standards Act, 2000 (
"ESA") minimums. He then went on to determine that
the fixed term agreement did not have any other language that would
displace the common law presumption of reasonable notice.
Thus, Mr. Howard was entitled to reasonable notice of termination
and not to payment for the remaining term of the
contract. MacKenzie J. also held that Mr. Howard had a duty
to mitigate his damages by seeking new employment.
Mr. Howard appealed the motions
judge's decision, asking that the Court of Appeal overturn the
ruling and find that he was entitled to payment of the remaining 37
months of the five year term. He also sought a declaration
that he had no obligation to mitigate his damages. Mr. Howard
was successful on both points.
The Court of Appeal held that the common law presumption that an
employer must provide reasonable notice of termination can only be
rebutted if the employment contract "clearly specifies some
other period of notice, whether expressly or impliedly".
Since the fixed term agreement between Mr. Howard and Benson Group
Inc. stated clearly that it automatically terminated at the end of
the term, it displaced the common law presumption of reasonable
notice. Because the ambiguous ESA-only termination clause was
deemed unenforceable by the motions judge (a ruling that was
not appealed by the employer), it was to be treated as being
deleted from the agreement. This meant that the only rights
of early termination were in the event of Mr. Howard's
resignation or termination for just cause. Otherwise, the
contract must continue for the full term or Mr. Howard must be paid
as if it had so continued.
Turning to the issue of whether or not Mr. Howard must mitigate
his damages, the Court of Appeal applied its 2012 decision,
Bowes v. Goss Power Products Ltd, 2010 ONCA
425. In Bowes, the Court of Appeal found that there
is no duty to mitigate where the contract specifies the penalty for
early termination. Applying Bowes to the facts of
this case, the Court of Appeal found that the agreement between
Benson Group and Mr. Howard contained an implied penalty in that
the lack of termination clause meant that Mr. Howard was entitled
to payment until the end of the five year term. The Court of
Appeal held that it did not matter if the penalty for early
termination was specified expressly or was by default. The
parties had bargained for certainty by choosing a fixed term
agreement and it would not be fair to Mr. Howard to allow the
employer to reduce its obligations to him nor would it be
consistent with the principle of certainty to leave mitigation as a
live issue at the time of termination. In the end, Mr. Howard
was entitled to his 37 months of pay without reduction for
This case clearly illustrates the potential pitfalls of long
fixed term agreements for employers. Any such agreement must
be carefully drafted to address the true expectations of the
parties regarding early termination. We strongly recommend
involving legal counsel at the early stages to protect your company
from unnecessary risk.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).