What happens when an employer terminates an employee on a fixed-term contract? The Ontario Court of Appeal in Howard v Benson Group Inc. recently weighed in on the issue. The Court held that the employee was entitled to an amount equal to his salary and benefits for the unexpired term of the employment contract rather than reasonable notice (which may have been less).

The facts were simple. The employee entered into a five year employment agreement but was terminated after 23 months.  The agreement expressly provided for early termination, including termination without cause.  The motion judge found the termination clause void for ambiguity and, as a result, there was no evidence of an intention to oust the common law presumption of reasonable notice.  Therefore, the employee was entitled to reasonable notice.  The decision was appealed by the employee.

The Court overturned the motion judge’s, finding that a provision stating that employment is for a fixed term, if stated unambiguously, will oust the implied term that reasonable notice must be given. The invalidity of the termination clause had no effect on the fixed term nature of the employment contract which unambiguously remained a fixed term contract.  As a result, the employee was owed a sum in an amount equal to his salary and benefits for the unexpired term of the employment contract.

The Court then turned to the issue of whether the employee had a duty to mitigate.  He held a fixed term employment contract obligates an employer to pay an employee to the end of the term, and such an obligation will not be subject to mitigation in the absence of contractual provisions to the contrary. Accordingly, the employer was obligated to pay out the remaining 37 months of the contract!

Written with the assistance of Danny Urquhart, articling student.