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 – after only 23 months of
The employee in question had a written contract with a five-year
term. The employer terminated the employee's employment 23
months into the contract, without alleging cause. The
employer's right to early termination without cause was
governed by the following provision:
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.
The employer paid the employee two weeks' salary in lieu of
notice and took the position that it had satisfied the contract.
The motion judge, however, found that the without cause termination
provision was unenforceable due to ambiguity. That finding was not
When the termination without cause provision was held to be
unenforceable, the employer argued that the common law presumption
of reasonable notice of termination should apply. The Court of
Appeal disagreed and held that when the employer terminated a fixed
term employment contract, without cause, and there was no
enforceable provision for early termination without cause, the
employee was entitled to the compensation he would have received to
the end of the employment contract. As a result, the employee was
entitled to 37 months of salary and benefits.
The Court also found that the employee had no duty to mitigate
his damages. Accordingly, the employee could have found new
employment the day after the termination and he still would have
been entitled to 37 months of compensation from his former
This case is a reminder of the importance of clearly written
employment contracts as a whole and termination provisions in
particular. The key takeaways for employers are:
Fully consider whether a fixed term
contract is appropriate in the circumstances of the specific job
and employee at issue. If it is anticipated that the employee may
not complete the full term of the contract, either because of the
availability of work or the circumstances of the employee, a
contract of indefinite duration may be preferable so as to avoid
this additional exposure. In most cases, with properly worded
termination provisions, there is no need for a fixed term
Ensure termination provisions are
clear and unambiguous. Of course, every contractual term should be
clear, but that requirement is especially important when dealing
with provisions that carry a high price for failure to achieve
A termination without cause provision
that simply refers to the applicable employment standards minimum
notice provisions is likely insufficient to permit the early
termination of a fixed term contract without paying out the
remaining sums owed under the contract.
Absent a provision in the agreement
requiring that the employee attempt to mitigate, an employee has no
obligation to mitigate his/her damages when a fixed term contract
is terminated early.
This case further reinforces that all employers should have
their employment contracts reviewed before they are presented to
prospective employees. Had the employer adhered to that advice, it
could have saved hundreds of thousands of dollars in damages and
1 Howard v. Benson Group Inc. (The Benson Group
Inc.), 2016 ONCA 256.
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