Yet another Canadian appellate decision has confirmed that employers who do not provide for the early termination of fixed-term employment agreements do so at their peril. In Alsip v Top Rollshutters Inc. dba Talius, 2016 BCCA 252 (“Alsip“), the court affirmed a damage award reflecting 28 months of remuneration to an employee who was terminated without cause eight months into a three-year fixed-term.

Randall Alsip was initially offered a “full-time and permanent” position as a manager with Talius. Concerned about leaving his long-term position in an industry with which he was familiar, Mr. Alsip rejected the first offer of employment and insisted upon a pay raise and a fixed term of three years. Talius agreed, but the clause referring to full-time permanent employment was not removed from the agreement.

Eight months into his employment, Talius terminated Mr. Alsip’s employment without cause. At the time, Mr. Alsip took the position that he was entitled to be paid the balance of the three-year term. In contrast, his employer took the position that the inclusion of the three-year term was merely a temporal cap on his employment, and that it was able to terminate Mr. Alsip’s employment by providing him reasonable notice of termination of employment or pay in lieu.

Lack of early termination provision results in high cost to employer

At trial, the judge found that the insertion of the three-year term without modifying the rest of the agreement created some ambiguity, but that it could be resolved by reviewing the objective circumstances surrounding the formation of the contract. Determining that the reference to “permanent” lost significance when the factual matrix was considered, he found that the parties had intended to fix a three-year term and not a cap, and, absent a clause providing for earlier termination, Mr. Alsip was entitled to damages for the remaining 28 months.

On appeal, Talius argued that the trial judge had erred by not considering the complete factual matrix surrounding the employment agreement, and by misapplying the contra proferentem rule (whereby the terms of an agreement are interpreted against the drafter). The Court of Appeal declined to reverse the trial judge’s decision, holding that contra proferentem was inapplicable where ambiguity can be resolved with reference to the objective factual matrix, and further, that Talius’s reliance on the subjective understanding of its representative did not assist in interpreting the contract:

… while the nature of the evidence that can be relied on under [the] rubric of “surrounding circumstances” will vary from case to case, it should consist only of objective evidence of the background facts at the time of the execution of the contract.

(at para. 27)

Takeaway: A clearly drafted early termination clause is essential

A similar result was reached in Howard v Benson Group Inc., 2016 ONCA 256 (“Howard”). In Howard the Ontario Court of Appeal awarded an employee whose employment was terminated 23 months into a five-year term damages reflecting the balance of the term on the basis that the contractual clause providing for early termination was unenforceable due to ambiguity.

Both Howard and Alsip are warning to employers who utilize fixed-term agreements that clear and unambiguous early termination provisions are necessary to avoid costly pay-outs to employees.