A recent decision of the Ontario Superior Court of Justice, John Howard v. Benson Group Inc. 2015 ONSC 2638, has given employers some helpful guidance on ending fixed term agreements with employees. The plaintiff in this case, Mr. Howard, had entered into an employment agreement with the defendant stating that the term of his employment was five years, commencing in September of 2012. On July 28, 2014, the defendant terminated Mr. Howard’s employment with just over three years left in the term. The defendant gave Mr. Howard two weeks of severance pay, which it claimed fully satisfied Mr. Howard’s entitlements under the employment agreement. Mr. Howard disagreed and commenced an action seeking payment of the remaining term. He then brought a motion for summary judgment on the interpretation of his employment agreement.

Although the agreement stated that it was for a five year term, it also contained a termination clause stating that it could 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 defendant relied on this clause to support its position that Mr. Howard was only entitled to the minimum notice prescribed by the Employment Standards Act, 2000.

The plaintiff countered by arguing that the clause was void because it had three crucial ambiguities.  First, it did not state specifically what was meant by the term “amounts paid.”  Did this include benefits and bonuses as required by the ESA? The plaintiff said that it was unclear and that the requirement in the ESA to provide benefits continuation could not be satisfied by payment of any amount of money, which meant that the termination clause fell below the minimum standards prescribed by the ESA. Second, counsel for Mr. Howard argued that the phrase “any amounts” gave rise to a possible interpretation that any payments were at the discretion of the defendant. This would also be a violation of the ESA. And finally, counsel for Mr. Howard argued that the it was unclear as to whether the amounts paid out under the termination clause were intended to be in total satisfaction of any claim that Mr. Howard may have in respect of the termination of his employment.

The defendant obviously disagreed with the plaintiff regarding the ambiguity in the termination clause but also advanced an alternative argument; even if the termination clause was void, the very fact that it had been included in the employment agreement meant that the parties intended that the fixed term could be terminated prior to its expiry. As a result, if the termination clause is unenforceable then the remedy should be to give the plaintiff common law reasonable notice of termination and not the remaining term of the agreement.

The Court accepted Mr. Howard’s position that the termination clause was not sufficiently clear and unambiguous to limit Mr. Howard’s claim to the minimums prescribed by the ESA. However, it rejected Mr. Howard’s claim that this meant that he should receive payment for the balance of the term of the contract. Instead, it found that the presence of an early termination clause - even one that was otherwise unenforceable - had the effect of qualifying the five year term. Accordingly, Mr. Howard was entitled to reasonable notice of termination based on the relevant Bardal factors. The Court found that it required further evidence to determine the appropriate notice period for Mr. Howard and ordered that the parties present affidavits addressing relevant factual issues to be considered.

This case provides some helpful guidance on both what the Court will look for in determining the enforceability of a termination clause in an employment agreement and also on how the presence of an early termination clause, however imperfect, can save the employer from the often unwelcome consequences of ending a fixed term agreement before the completion of its original term.  Employers who wish to make use of fixed term agreements should read this case carefully and review their template contracts to ensure that they have the best possible protections.