Canada: Be Careful Of Fixed Term Employment Agreements

On October 13, 2016, the Supreme Court of Canada refused to consider an appeal of an Ontario Court of Appeal decision. This decision is a useful reminder for employers about the care that needs to be taken with fixed term employment agreements.

An employee signed a five year fixed term agreement provided by the employer. The employee was dismissed, without cause, 23 months later. The employee then sued, claiming an entitlement to the remainder of the five year term.

The employer argued a provision in the agreement, which provided:

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.

Required only that termination pay be equal to the minimum standards in the legislation. The trial judge disagreed and ruled this provision was unenforceable because it was ambiguous, which is consistent with a decision of the Alberta Court of Appeal a few years ago which considered a contractual provision which said "you will be entitled to advance notice or severance pay thereof in accordance with the Employment Standards Act of Alberta." That determination was not appealed and the trial judge also ruled that the employee was entitled to common law damages.

The employee appealed and the Ontario Court of Appeal found that because the employee was hired under a fixed term agreement, the employee was entitled to more than common law notice, and he was entitled to be paid for the remainder of the five year term of the agreement. The appeal court also found that the employee was not required to take steps to mitigate these damages. The Supreme Court of Canada, by refusing to hear the appeal, approved this decision.

The principles applied by the Supreme Court are not new. However, this case is a useful reminder to all employers about the care that needs to be taken in drafting employment agreements. Employment agreements, and especially employment agreements for a definite term, must include clear and unambiguous termination provisions. The consequences of not doing so, as this case shows, can be very expensive.

We encourage all employers to have their employment agreements reviewed before they are signed. Circumstances like this demonstrate that an ounce of prevention is worth – and a lot less expensive – than a pound of cure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.