The requirement for an employee to mitigate their damages following termination is generally helpful for employers during wrongful dismissal litigation, but this may not be the case when it comes to fixed-term employees.
Employers use fixed-term contracts for various business reasons, including:
- projects to take place over a fixed time;
- summer student and internship positions;
- the right to allow contracts to expire without having to provide notice; and
- executives may be considered fixed-term employees if their agreements are drafted to align with a directorship appointment.
These kinds of contract have their benefits but they also come with some potential disadvantages.
What happens when it becomes clear that a contract employee is not working out, business realities change or down-sizing must occur? If a contract employee is terminated without cause before the end of the term, what notice is an employer required to give and is the employee required to mitigate?
Ordinarily, an employee whose employment is terminated is entitled to common law reasonable notice (unless an enforceable contractual termination provision provides otherwise) and must mitigate their damages by seeking alternative employment as soon as possible. However, this is not the case for fixed-term employees according to the Ontario Court of Appeal in Howard v Benson Group Inc, 2016 ONCA 256 (leave to appeal to the Supreme Court denied, [2016] SCCA 240).
The employee in Howard v Benson Group Inc was party to a five-year fixed-term employment agreement. The employer terminated his contract three years into the term and provided him with the statutory minimum, purporting to comply with a provision in the employment agreement which stated that his "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".
The motions judge found that this provision was unenforceable, as the termination provision did not sufficiently limit the employee's notice entitlement to the minimum standards set out in the Employment Standards Act. The motions judge then ordered a mini-trial to take place regarding the appropriate amount of reasonable notice and found that the employee had a duty to mitigate. The employee appealed this finding.
On appeal, the Ontario Court of Appeal found that a provision allowing for the automatic termination at the end of the contract term ousts the implied term that reasonable notice must be given for termination without cause. The court concluded that the employee was entitled to the compensation that he would have earned at the end of the fixed-term set out in the employment agreement.
On the subject of mitigation, the court disagreed with the motions judge and found that the employee was not required to mitigate his damages. The court explained that the provision of a fixed-term contract amounts to contracting out of the common law. On that basis, it concluded that in the absence of an enforceable contractual provision providing otherwise, a fixed-term employment contract obliges an employer to pay an employee until the end of the term without any duty to mitigate on the part of the employee.
In sum, employers that wish to use fixed-term employment agreements should ensure that they have airtight early termination provisions in their contracts and consider specifically obliging employees to mitigate. If they have no termination clauses or if such clauses are found to be invalid or inoperable, they may be on the hook to pay out the remainder of an employee's term, with no obligation on the employee to seek alternative employment.
For further information on this topic please contact Claire Himsl at Fasken by telephone (+1 403 837 0610) or email ([email protected]). The Fasken website can be accessed at www.fasken.com.
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