The Ontario Court of Appeal recently considered the common law principles of reasonable notice and the duty to mitigate in the context of fixed-term employment contracts in Howard v Benson Group Inc. Howard, the plaintiff, was employed at an automotive service centre pursuant to a five-year fixed term contract. He was terminated without cause around two years into his contract. Howard brought an action for wrongful dismissal and breach of contract, seeking damages equal to the salary he would have received for the remainder of the fixed term of his contract. On a motion for summary judgment, the judge concluded that Howard was entitled only to common law “reasonable notice”, rather than the higher damages he sought. Moreover, the judge concluded that Howard had a duty to mitigate his damages by making reasonable efforts to find alternative employment.
Howard appealed to the Ontario Court of Appeal. Finding that the motions judge had erred, the Court ruled that Howard was indeed entitled to contractual damages for the unexpired portion of his fixed-term contract. It reasoned that where no early termination clause is specified in the contract, the parties have bargained for a specific termination date, thus negating the rationale underlying the common law duty to provide reasonable notice. More significantly, the Court applied the same reasoning to find that the common law duty to mitigate does not apply in the case of fixed-term contracts that do not contain a mitigation clause.
The Court of Appeal’s ruling goes beyond reinforcing the importance of including carefully drafted termination provisions in employment contracts. It also clearly establishes how important it is to include early termination and mitigation clauses in fixed-term employment contracts.
The Employer has filed leave to appeal to the Supreme Court.
Written with the assistance of Melanie Simon, articling student.