The rules of contractual interpretation are dynamic. The present law will allow a claim based on the full value of the unexpired contractual term under an employment contract, absent a termination provision. This has not always been the law. As recently as 10 years ago, such a contract would have been interpreted to imply a duty to mitigate or minimize the claim and also subtract any income earned in the unexpired period.

Sky-High Damages

Consider the recent case decided by the Ontario Superior Court. The plaintiff was one of the former owners of a funeral home who had sold the business to a new owner. As is often the case, the plaintiff was hired back on an employment contract for a fixed term of 10 years.

The relationship became a difficult one. Certain conflicts arose between the new buyer and the former owner. The plaintiff brought a claim for constructive dismissal against the new owner and was successful. The trial judge found these facts to support his conclusion:

 [O]ver a period of several months [the Defendant-purchaser]: (1) Improperly terminated Grant’s [the Plaintiff] use of the company vehicle; (2) Without notice to Grant, recruited an employee who was subordinate to him to track his time at the funeral home; (3) Did not pay Grant commissions to which he was rightfully entitled; (4) Removed Grant’s photograph from the Funeral Home; and (5) Without notice to Grant and without seeking any explanation from him, changed the locks to the funeral home.

More to the issue of the damage claim, these events had occurred fairly early into the relationship. Success on the constructive dismissal meant that the employer was looking at potential damages covering a period of 9 years (the remainder of the employment contract) which amounted to $1.274 million.

The contract did not contain a termination clause, which resulted in the full unexpired period forming the basis for the claim. Had such a clause existed, there is no doubt that this would have reduced the employer’s liability.

The real-life considerations of negotiating the buy-sell agreement may well have resulted in this employment agreement being negotiated in this manner. It may have been an important term for the plaintiff as he was the sole survivor of the former business. There is no visible record of the sale details but it may well have been a situation where the estate of his deceased brother shared the proceeds of the sale equally but the employed surviving owner took this sum without such a reduction.

Employers’ View

These issues can be complicated. What is clear however is that a fixed-term contract exposes the employer to a considerable damage claim, particularly if the employment is terminated early on. Caution should be exercised to consider a termination clause and seek counsel from an experienced employment lawyer before entering into a similar contract.

Get Advice Before You Act

For advice on this and similar issues and, indeed, any employment issue, contact the offices of Toronto employment and labour lawyers Mallins Law. We regularly advise employees and employers on legal workplace issues. Contact us online or by phone at 647-792-0310 to schedule a consultation.