Fixed-terms are distinct from termination provisions: Ontario Court of Appeal
In a short decision, the Court of Appeal for Ontario has recently clarified an important question regarding fixed-term employment contracts. Namely, whether a fixed-term itself can be considered a type of termination clause.
The answer matters, as in accordance with the Court of Appeal’s earlier decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, the effect of any illegality in a termination provision (no matter where situated) has the result of rendering all termination clauses in an employment contract unenforceable.
We have warned time and again on this blog about the danger of employers using fixed-term contracts. That is because if fixed-term employment agreements are terminated before their anticipated end date, workers have a presumptive entitlement to be paid for the balance of the term. Moreover, these monies are payable without regard to any mitigation efforts made by the worker: Howard v. Benson Group Inc., 2016 ONCA 256. Accordingly, the consequence of an early termination provision being found to contravene employment standards legislation can be quite severe for employers who use fixed term contracts.
All this brings us to the decision du jour: Kopyl v. Losani Homes (1998) Ltd., 2024 ONCA 199 (“Kopyl”). At issue was a worker who was employed pursuant to a one-year fixed-term contract (running from July 6, 2022 to July 6, 2023). On January 9, 2023, the employee was dismissed on a without cause basis and provided with four-weeks worth of pay-in-lieu of notice (equal to $11,538.46).
The worker challenged the early termination provision in the parties’ fixed-term agreement, arguing that it violated the requirements of the Employment Standards Act, 2000. Interestingly, before the application judge who first heard the case, the employer conceded that its early termination provision was unenforceable. However, it also contended that:
…the clause establishing a one-year limit to the respondent’s employment (the “Fixed Term Clause”) was in effect a termination clause. Thus, because the Termination Clauses in the contract were void, so too was the Fixed Term Clause. The legal consequence was that the respondent’s employment was not subject to a fixed term but, rather, was terminable upon the provision of “reasonable notice” at common law, subject to a duty on the respondent to mitigate her damages. The appellant maintained that the four-week salary that had been paid to the respondent more than satisfied its obligations upon termination. [emphasis added]
If successful, the consequence of this argument would be to wholly defeat the worker’s claim of wrongful dismissal.
Unfortunately for the employer, the application judge rejected its argument. Not satisfied with this outcome, the employer appealed, only to meet with defeat again.
As affirmed by the Court of Appeal:
Waksdale, which did not involve a fixed-term employment agreement, involved entirely different circumstances and has no application to this case. Waksdale merely held that the invalidity of a particular termination clause in an employment contract voided other termination provisions in the agreement, with the result that the employee was entitled to reasonable notice upon termination of their employment. Waksdale made no reference to Benson Group Inc., nor did it suggest that the invalidity of the termination clause in an employment contract had the effect of converting a fixed term contract into one terminable on reasonable notice. [emphasis added]
Takeaway
The cost for the employer in Kopyl of using a flawed fixed-term employment contract was significant. It was ultimately ordered to pay out wrongful dismissal damages equal to roughly 5 months of wages ($63,461.54) plus the value of lost benefits in an unspecified amount. And that is before considering its own legal fees, and contribution to the legal fees incurred by the successful plaintiff employee.
The lessons for employers from Kopyl are two-fold: 1) do not assume that the courts will come to your rescue if you draft a flawed termination clause (as creative arguments with respect to contractual interpretation, when made by employers, are rarely successful); and 2) wherever possible, employ contracts of indefinite duration instead of fixed-term agreements.
This article was originally published on April 12, 2024 at First Reference Talks.
Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.