Written on behalf of Peter McSherry
One type of employment relationship that often raises questions and sparks debates is the fixed-term contract. As Canada’s economic landscape continues to shift, employers seek flexibility while employees seek stability. However, striking the right balance between these two needs is where the intricacies of fixed-term contracts come into play.
In a recent blog post, we wrote about an independent contractor who worked for a company pursuant to a fixed-term contract of 72 months. When the employer ended the contract after only eight months, the court ordered the employer to pay the contractor the remaining 64 months’ salary, as the contract had been established for a fixed term. This blog post will explore a recent similar circumstance that resulted in a completely different outcome.
Independent Contractor Hired on Fixed Term Renewable Contract
In Elder v Max Wright Real Estate, Mr. Elder (the “plaintiff”) was hired by the defendant, “Sotheby’s”, as a real estate agent on June 10, 2021. Sotheby’s terminated the relationship without cause or notice on July 5, 2022. It is important to understand the specific terms of the contract, including the language used with respect to the anticipated length of the relationship. The “Term of Agreement” section of the contract between the plaintiff and Sotheby’s read as follows:
“1. Except as provided in Section Q below, this Agreement will be for a period of one year from the effective date written above.
2. The Agreement may be renewed for one additional year by mutual written agreement and on revision of the Contractor’s Compensation as set out in Appendix A of this Agreement. In order to benefit from an annual renewal of this Agreement, the Contractor acknowledges that the minimum production level in terms of annualized closed GCI shall be $100,000.
3. In the event no renewal Agreement is executed, and the Contractor continues to provide services to the Company, this Agreement will be deemed to be extended for a period of one year and the parties agree to be bound by all the terms, provisions, and conditions of this Agreement as if it has not expired.”
Was the Term Renewed?
In this case, the original term of the contract was from June 10, 2021 until June 10, 2022. The “Term of Agreement” section of the contract dictated that the contract could be extended for additional one-year periods, but this would only occur if the parties executed an additional agreement to that effect. As stated in provision 3 of the Term of Agreement section, if the parties did not execute such an agreement, but the plaintiff continued to work for Sotheby’s, then the agreement would be “deemed” to be extended for one additional year.
The evidence before the Court demonstrated that, while the parties had not executed a renewal of the contract after June 10, 2022 (the end date of the original term of the contract), the plaintiff had continued to work for Sotheby’s until his termination without cause or notice on July 5, 2022. As such, provision 3 of the Term of Agreement section of the contract operated such that the term of the contract was deemed to be extended for one additional year (in other words, it was extended from June 10, 2022 through June 10, 2023).
The Law on Fixed Term Contracts
The court was satisfied that the “the law is clear that when a fixed term contract is terminated, the terminating party owes the non-terminating party damages equal to the amount that would have been earned under the contract for the duration of its term subject to the nonterminating party’s duty to mitigate unless there is an enforceable early termination clause”. It does not matter whether the person is employed as an independent contractor or a dependent contractor – either way, the party who terminates a fixed-term contract is liable for damages equal to the remainder of the contract (just like what happened in the case discussed in our earlier blog).
However, in this case, Sotheby’s argued that they were entitled to end the contract at any time, damage-free, because of an early termination clause in the contract.
Was There an Early Termination Clause Allowing Sotheby’s to End the Employment Relationship Without Paying Damages?
The termination clause at issue provided that “either party may terminate this Agreement, without cause, at any time with written notice to the other party.” The Court concluded that this provision entitled Sotheby’s to terminate the agreement at any time, but that it could only do so with written notice to the plaintiff that the agreement was at an end. In this case, Sotheby’s had provided the plaintiff with no notice at all, written or otherwise.
The Court was satisfied that to allow Sotheby’s to just end the contract whenever it felt like it, with no notice to the plaintiff and no damages due to him, would render the renewal provisions of the “Term of Agreement” section of the contract effectively meaningless. In other words, it would allow either party to just end the relationship whenever, wherever, and without notice. That would be an illogical interpretation of the overall contract and, since contracts must be read, considered and interpreted in their entirety, the only logical interpretation was that Sotheby’s did not, in fact, have the right to terminate the plaintiff’s employment in the manner it had.
11 Months Remaining on 12-Month Contract
When Sotheby’s ended the plaintiff’s contract in July 2022, there were 11 months remaining on the 1-year period for which the court concluded the contract had been renewed. However, the plaintiff had been able to secure a position with another brokerage only six days after he had been let go from Sotheby’s. As such, Sotheby’s argued that the employee had fully mitigated any damages to which he might have been entitled, such that Sotheby’s should not have to pay him any damages at all.
The Court, however, disagreed with Sotheby’s, noting that “mitigation of damages does not mean the elimination of damages”, in addition to which, 11 months remained on the term of the contract between the plaintiff and Sotheby’s.
As for calculating actual damages, it was noted that the plaintiff, as a real estate agent, worked on commission and did not receive a steady salary. As such, his income was quite inconsistent, both with Sotheby’s and with his new employer. To address this, the Court took the income the plaintiff had earned during his time with Sotheby’s, which was approximately $60,000, and divided that by 12 months, to arrive at a monthly income of $5,026.68. The Court then multiplied that figure by the 11 months remaining on the contract at the time of termination, to arrive at $55,293.48 as outstanding earnings.
However, given the downturn experienced by the real estate market in 2022, the Court applied a 45% discount to that figure to account for the year-over-year decline in that market, and arrived at $30,411.41. Finally, the Court deducted monies earned by the plaintiff with his new brokerage as mitigation, which was $9,377.40. Ultimately, at the end of its calculation, the Court arrived at a final figure of $21,034.01, which was ordered to be paid to the plaintiff as damages for the wrongful termination of his contract.
Contact Peter A. McSherry Employment Lawyer for Assistance Resolving Your Employment Contract Dispute
The importance of the language used in an employment contract cannot be underestimated. A change of one word or one line in a contract can change the entire interpretation, and may equate to the difference of thousands of dollars of damages. Whether you work as an employee, an independent contractor, or a dependent contractor, it is important that you have a clear understanding of your employment contract. Contact the law offices of Peter A. McSherry for assistance reviewing and understanding your employment contract. Contact us online or by telephone at 519-821-5465 to speak with a member of our team regarding your potential claim.