A few months ago we commented on a case where a fixed term contract caused an employer significant liability because it did not allow for early termination prior to the end of the fixed term. The Ontario Court of Appeal recently released a decision, Howard v. Benson Group Inc. (“Howard”), which provides a further warning about the use of fixed term contracts.
In Howard, the employer used a 5 year fixed term contract and terminated the employee, without cause, 23 months into the fixed term. The employment agreement contained the following clause that the employer sought to rely on: “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.”
This clause was found to be ambiguous and unenforceable, meaning that the employee was entitled to the value of the entire fixed term. Interestingly, the Court of Appeal overruled the Trial Judge and also found that the employee was not obligated to search for new work or otherwise mitigate his damages, stating that “[i]n the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, 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.”
This case is a good reminder for Alberta employers about the use of fixed term contracts (also see Michela v. St. Thomas of Villanova Catholic School 2015 ONCA 801 where the teachers on fixed term contracts were awarded 12 months’ reasonable notice). They may sometimes be preferred over indefinite term contracts in certain situations, for example where an employee is hired for a short and definite time period or to complete a specific project. Likewise, they can be used effectively, but it is crucial that they contain a properly drafted clause that allows for early termination on a without cause basis. Without this clause, the employer can expect to be on the hook for the entire remainder of the contract, possibly with no duty for the employee to mitigate his or her damages.