On March 19, 2024, the Ontario Court of Appeal confirmed in Kopyl v. Losani Homes (1998) Ltd., 2024 ONCA 199 that when a termination provision is rendered void in a fixed-term employment contract, the employer is liable to pay the employee for the balance of the employment term.
Facts
The employee was hired on a one-year fixed term contract. Approximately six months into the contract, the employer terminated the employee on a without-cause basis. The employer paid the employee four weeks’ salary, in accordance with the fixed-term contract’s early termination provision.
The employer’s argument
On appeal, the employer acknowledged that the early termination provisions in the appellant’s employment contract were unenforceable because they contravened the Ontario Employment Standards Act, 2000. However, the employer argued that the contract’s fixed-term clause, which established the one-year term of the employment relationship, was itself a type of termination provision, so that if the early termination provisions were unenforceable, then the fixed-term clause should similarly be rendered null and void. The employer relied on the Court of Appeal’s 2020 decision in Waksdale v. Swegon North America Inc. (Waksdale), which held that if a termination provision in an employment agreement violated the Employment Standards Act, all termination provisions in the employment agreement are unenforceable.
The legal consequence of this, the employer argued, was that the employee was only entitled to reasonable notice at common law damages, subject to the duty to mitigate their damages, rather than payout of the remainder of their fixed-term contract. The employer argued that the four weeks of salary already paid to the employee fully satisfied the employer’s obligations to provide reasonable notice of termination.
Ontario Court of Appeal’s decision
The Ontario Court of Appeal rejected the employer’s argument, finding that a fixed-term clause is not synonymous to a termination provision. The court confirmed that where an early termination provision is found to be unenforceable, the employee is entitled to compensation they would have earned in the period between their date of termination and the end of the fixed-term employment period.
The court also confirmed that an employee under a fixed-term contract is not subject to the duty to mitigate.
Lastly, the court clearly expressed that its decision in Waksdale has limited application to fixed-term employment agreements insofar that the unenforceability of a termination provision does not make a fixed-term contract into one terminable on reasonable notice. Fixed-term employees continue to be entitled to damages reflecting the balance of their contracts when the early termination clauses are rendered null and void.
Takeaway for employers
Many employers use fixed-term employment arrangements assuming that they will limit their legal obligations at termination. However, fixed-term employment contracts can carry significant legal liability, and employers should expect terminated fixed-term employees to routinely claim payout until the end of the contract. In light of Waksdale and other employment law decisions, the reasons a court can find a termination provision to be null and void are constantly expanding. Employers should carefully review their fixed-term employment contracts to ensure that the early termination provisions are enforceable.
For more information on this topic, please contact the author, Fatimah Khan.
