A recent ruling by the Ontario Court of Appeal on a fixed-term employment contract highlighted some very real ramifications for one Ontario employer.
Employee John Howard was terminated without just cause 23 months into his 37-month fixed-term employment contract. His employer, Benson Group Inc., cited a clause in the executed contract which stated:
“(t)he Employee and the Employer may terminate the Employee’s employment at any time in accordance with the terms and conditions of this Agreement.
The contract further stated that:
“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.”
Benson Group argued at trial that they were well within their rights, and in accordance with the Employment Standards Act. They defended that their liability was limited to two weeks’ salary in lieu of notice, as outlined in the Act’s minimum requirements.
The Ontario Superior Court of Justice disagreed, finding the wording of the contract was “ambiguous,” and was, therefore, unenforceable.
In the court’s April 8 decision, it concluded that Mr. Howard was entitled to ‘reasonable notice’ under the common law, unless an agreement to the contrary existed. One did not.
Benson Group Inc. was ordered to pay Mr. Howard the balance of his contracted earnings.
“the appellant (Mr. Howard) is entitled to the compensation that he would have earned to the end of the Employment Contract.”
No Duty to Mitigate
The court also noted that Mr. Howard had no duty to mitigate the damages:
“…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.”
What Employers Can Learn From This Ruling
Except for rare situations, it’s generally a good idea to avoid fixed-term contracts.
Termination Without Just Cause
Employment contracts can offer employers important protections in circumstances of termination where just cause is absent. Specifically, they can provide companies an opportunity to significantly reduce the pay in lieu amounts or notice periods that would typically be applicable.
It’s an old rule of law, but one keenly felt in this situation. Ambiguity in a contract benefits the person or party that did NOT draw up the contract.
For employers to take advantage of any potential protection afforded them in a fixed-term contract, they must use unambiguous, straightforward contractual language to define any termination clause(s) or it will be deemed unenforceable.
If you do decide to use a fixed-term contract, be certain to include a clearly defined clause requiring the employee to mitigate their damages, should the contract be terminated early.
And here’s a bonus…
The first three letters of lawyer spell law for a reason. There’s more to Canadian employment law than meets the eye. And while you may know a lot about employment law, your lawyer knows more. If you must work with fixed-term employment contracts, always consult a lawyer versed in the subtleties and nuances of the Employment Standards Act.
If you need fixed-term employees, reach out to the staffing specialists at Employment Professionals Canada today. By partnering with a staffing expert you can find the employees you need for the timeframe you want, without the dangers of fixed-term contract liabilities.