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Court of Appeal: No Duty to Mitigate if Employment for Fixed Term

On April 8, 2016, the Ontario Court of Appeal affirmed that an employee whose employment is subject to a fixed term, is upon early termination of his employment, entitled to payment of an amount equal to his salary and benefits for the unexpired term of the contract, with no duty to mitigate.

In the case of Howard v. Benson Group Inc. 2016 ONCA 256the Ontario Court of Appeal overturned the summary judgment decision of Justice Donald MacKenzie of the Superior Court of Justice.  Benson had employed Howard pursuant to the terms of a written employment agreement.  The agreement provided for a fixed five year term but also provided that Benson could terminate Howard’s employment at any time “in accordance with the terms and conditions of this agreement”.  Specifically, a paragraph of the agreement provided that upon termination, Howard would only be entitled to receive  amounts in accordance with the Employment Standards Act of Ontario. 

Accordingly, when Benson terminated Howard’s employment almost two years into the contract, it argued that its liability was limited to two weeks salary in lieu of notice.  The motion judge found that the clause was unenforceable due to ambiguity and awarded Benson common law damages for wrongful dismissal, subject to a duty to mitigate.

The Ontario Court of Appeal (Justices Cronk, Pepall and Miller) disagreed with the motion judge.  Justice Miller wrote the decision of the court.  Justice Miller held that the applicable standard of review in this case was one of correctness.  In other words, where the motion judge’s decision contained an “extricable question of law” it was reviewable on the correctness standard.

Justice Miller held that where an employment agreement states unambiguously that the employment is for a fixed term it will oust the implied term of an agreement that reasonable notice must be given for termination without cause.  If the parties to such a fixed term contract do not specify a pre-determined notice period, the employee is entitled, on early termination, to the wages he would have received to the end of the term.  Justice Miller cited an Ontario Court of Appeal case called Bowes v. Goss Power Products Ltd. 2012 ONCA 425  for such authority.

Because the impugned clause was void for uncertainty, Howard’s employment agreement unambiguously remained a fixed term contract.

With respect to Howard’s duty to mitigate his damages, Justice Miller found that the leading case from the Ontario Court of Appeal was Bowes.  Bowes held that a contractually fixed term of notice is distinguishable from common law reasonable notice.  Where the agreement stipulates a fixed term of notice or payment in lieu, it should be treated as fixing liquidated damages or a contractual amount.  In such cases, there was no obligation on the employee to mitigate his damages.  Thus, the duty to mitigate does not apply to liquidated damages or contractual amounts.

The Court of Appeal allowed the appeal and remitted the matter to the motion judge for determination of the quantum of damages to which Howard was entitled.