Terminating a Fixed-Term Contract

In Howard v Benson Group Inc., 2016 ONCA 256, the Court of Appeal found that an employee who is employed under a fixed term employment contract that does not provide for early termination without cause is entitled to payment of the unexpired portion of the contract on early termination of the contract.

John Howard was employed under a five-year fixed term contract with Benson Group Inc. 23 months into the contract, Benson Group terminated Mr. Howard’s employment without cause. The employment contract expressly provided for early termination without cause in Clause 8.1:

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.

Mr. Howard brought an action for breach of contract seeking payment of the unexpired portion of the contract. Benson Group’s position was that it terminated the employment contract according to Clause 8.1 and that its liability was limited to two weeks’ salary in lieu of notice.

At the motion for summary judgment, the motion judge ruled that Clause 8.1 was unenforceable due to ambiguity. Summary judgment was granted, but Mr. Howard was only awarded common law damages for wrongful dismissal.

Mr. Howard appealed the decision to the Court of Appeal, arguing that he was entitled to damages in the full amount owing under the remaining 27 months of the contract. The Court of Appeal found that the motion judge had erred, and ruled that Mr. Howard was entitled to 27 months’ pay due to Benson Group’s breach of contract in terminating the employment contract without cause.

Although Benson Group argued that the result would be a windfall to Mr. Howard, the Court of Appeal rejected this argument because the employer had drafted the contract and the employee was not a sophisticated party. If an employer does not use unequivocal, clear language and instead drafts an ambiguous or vague termination clause that is later found to be unenforceable, it cannot complain when it is held to the remaining terms of the contract.

To find out more about, contact employment lawyer Peter McSherry online or at 519-821-5465.

To read the full decision, click here.