In the recent case called Kopyl v. Losani Homes, 2024 ONCA 199, the Ontario Court of Appeal upheld a lower court’s ruling that found in favour of an employee who was successful in a wrongful dismissal claim involving a fixed-term contract.
Background
The employee commenced his job with an employer under a one-year fixed-term contract, that was scheduled to run from July 6, 2022, to July 6, 2023 (the “Fixed Term Provision”). Among other topics, the employment contract included termination clauses covering a termination “for cause” and a termination “without cause” provisions.
On January 9, 2023, the employer terminated the employee’s employment relying on the without cause termination provision, and gave her a severance package consisting of four (4) weeks of salary.
During their wrongful dismissal claim, the employee argued that the termination provisions were legally invalid and unenforceable because they violated requirements set out in the Employment Standards Act, 2000. The employee argued that, based on the general legal rule that an employer is contactually prohibited from terminating an employee prior to the expiry of the fixed-term, the employee was entitled to be paid all of her remaining salary for the unexpired portion of the employment contract, and she had no duty to mitigate her damages.
To defend the wrongful dismissal claim, the employer acknowledged that the termination provisions in the fixed-term contract was void for violating the Employment Standards Act. At the same time, it argued that the Fixed-Term Provision in the employment contract was effectively a termination provision. Therefore, based on a recent court decision called Waksdale v. Swegon North America Inc., 2020 ONCA 391 (see this employment law blog describing the case), where one termination provision anywhere in an employment contract violates the Employment Standards Act, then all termination provisions in the employment contract null and void. Accordingly, because there was no longer a termination provision, the employee was not subject to fixed-term, and was therefore not entitled to compensation for the unexpired portion of the Fixed-Term. Rather, she was entitled to “reasonable notice” under common law, and was subject to a duty to mitigate her damages. According to the employer, the 4-week salary paid to the employee more than satisfied its obligations upon termination of employment.
Lower Court Decision
At the wrongful dismissal claim, the court found in favour of the terminated employee by relying on a case called Howard v. Benson Group Inc., 2016 ONCA 256, which found that a term in a contract that provides for a fixed term of employment is not a termination clause since when a fixed term expires, the employment relationship terminates automatically and the employer is not obligated to provide notice or payment in lieu of notice. Accordingly, in this case, even though the termination provisions were invalid, the fixed-term clause remained in effect. Therefore, since the employee wrongfully dismissed, she was entitled to a payment equal to her salary and benefits for the unexpired portion of the Fixed-Term, less amounts already paid to her based on the severance package. Moreover, the employee had no duty to mitigate.
Ontario Court of Appel Decision
On appeal, the court dismissed the employer’s appeal based on the following reasons:
- based on common law, including the case of Benson Group Inc., an invalid without-cause termination clause does not invalidate a fixed-term clause
- Without an enforceable without-cause termination clause, the wrongfully dismissed employee was entitled to receive the compensation she would have earned to the end of the fixed-term contract, without a corresponding duty to mitigate her wrongful dismissal damages
- The seminal court case of Waksdale did not apply to this case since it not involve a fixed-term contract. Moreover, the ruling in Waksdale simply that an invalid termination clause in an employment contract voided other termination clauses in the agreement, such that the employee was entitled to reasonable notice upon termination of their employment. Additionally, Waksdale did not refer to Benson Group Inc., or suggest that when a termination clause in an employment contract is invalid it converts a fixed-term contract into a contract that may be terminated on reasonable notice.
Take-Away Lessons
The Ontario Court of Appeal’s recent decision in Losani Homes stands for the proposition that a court will not necessarily invalidate an entire fixed-term contract simply because it contains an invalid termination provision. Rather, even when an employment contract contains an invalid termination clause, a court may find that a fixed-term clause remains enforceable and requires the employer to pay the employee the compensation they would have earned to the end of the fixed term, without any duty to mitigate.
Call an Ontario Employment Contract Review Lawyer
If you are an employee in Ontario presented with a new fixed-term employment contract by your employer, call Bune Law, Toronto Employment Lawyer, to arrange a confidential consultation to review and better understand your employment contract. We are here to protect your employee rights and best interests. With our detailed employment contract review with an Ontario employment lawyer, you can invest in your future by protecting your rights if you are ever terminated from your employment, including to ensure you receive a fair severance package, deal with a wrongful dismissal claims or constructive dismissal claims.