Court Awards 37 Months’ Pay as Damages for Termination

One of the most pertinent issues in any wrongful dismissal case is the ‘duty to mitigate’. In the employment law context this concept refers to a terminated employee’s obligation, at law, to actively seek new employment. The evidence from the terminated employee must demonstrate that reasonable efforts have been made to secure new work: (1) in a similar capacity to their previous job, and (2) at a similar rate of pay.

In the recent decision of Howard v Benson Group Inc., 2016 ONCA 256, the Court of Appeal for Ontario conclusively determined that this duty would no longer apply to employees who are engaged pursuant to fixed-term contracts. This award has significant implications for employers and employees alike.

Background

The Plaintiff in the action, John Howard, was 57 years old at the time of termination. Prior to his termination he was employed in the role of Sales Development Manager at an automotive service centre in Bowmanville, Ontario, known as The Benson Group Inc.

The Benson Group Inc., engaged Mr. Howard on a 5 year fixed term contract. Accordingly, the contract began in September of 2012 and was due to end in September of 2017. Unfortunately, the relationship broke down nearly two years after it began, and Mr. Howard’s employment was terminated in July of 2014.

The Employment Agreement contained a Termination Clause which read as follows:

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.

In an earlier decision from the Superior Court of Ontario, the judge presiding over the case, Justice MacKenzie decided that the Termination Clause was ambiguous and could not be relied upon to limit Mr. Howard’s entitlements on termination.

This is where the Benson Group Inc. ran into trouble. In the absence of an enforceable termination clause, the Court held that Mr. Howard was entitled to reasonable notice of termination.

Mr. Howard appealed this decision. It was Mr. Howard’s contention that because there was no enforceable termination clause, he was entitled to the full balance of his contract, 37 months. Importantly, Mr. Howard also argued that there should be no deductions made to this amount on account of mitigation.

The Question

In reviewing the lower court decision, the Court of Appeal summarized its inquiry in the following terms: The question is whether an employer who: (1) terminates without cause (2) a fixed term employment contract that (3) does not include an enforceable provision for early termination without cause is (4) liable for damages according to the common law of reasonable notice, or for wages for the unexpired term of the contract?

The Answer

The Court of Appeal concluded that the fixed term nature of the contract ousted the common law and the possibility of reasonable notice of termination.

In practical terms, this meant that Mr. Howard was entitled to be paid out for the full remainder of his contract, the equivalent of 37 months’ pay. Furthermore, the Court concluded that Mr. Howard’s pay over the 37 months would not be subject to mitigation. For Mr. Howard, this meant that he would receive full payment for the 37 months irrespective of his job search efforts, or success in securing new work.

What Does This Mean For Employers?

Employers must ensure that their fixed term employment contracts contain enforceable termination clauses. This is the only way to avoid serious financial liability in the wake of the decision in Howard v Benson Group Inc. Contact us right away to review your employment contracts and ensure that they include enforceable termination provisions.

What Does This Mean For Employees?

As an employee under a fixed term contract, you may have significant rights to compensation upon termination. Contact us right away to obtain professional insight on what your rights are, and how to obtain what is legally owed to you.