The Court of Appeal for Ontario has dismissed the notion put forth by an employer that, due to invalid termination clauses, its fixed-term employment agreement would merely entitle a former employee to reasonable common law notice — and not payment for the balance of the contract — upon early termination.
Losani Homes did not dispute the fact that the termination clauses in its fixed-term contract with K.K. contravened the Employment Standards Act and were invalid. It took the position that, because the termination clauses in the contract were void, so too was the fixed-term clause — relying on the Court of Appeal’s 2020 ruling in Waksdale v. Swegon North America Inc.
“The legal consequence was that the respondent’s employment was not subject to a fixed term but, rather, was terminable upon the provision of ‘reasonable notice’ at common law, subject to a duty on the respondent to mitigate her damages,” the Court of Appeal said. “The (employer) maintained that the four-week salary that had been paid to the respondent more than satisfied its obligations upon termination.”
Background
K.K., hired on a one-year contract from July 6, 2022, to July 6, 2023, with an annual salary of $150,000, was terminated without cause on Jan. 9, 2023.
Losani Homes, citing termination clauses in the contract, paid her four weeks’ salary as compensation. However, the employee contested the termination, arguing that the clauses were void under the Employment Standards Act, 2000, as they did not meet the statutory requirements, rendering the early termination invalid.
The employer countered by referencing Waksdale, arguing that if one termination clause was invalid under the Act, it would nullify all termination clauses, including the fixed-term clause. They claimed this converted the employment to an indefinite term, subject to termination with reasonable notice.
Courts disagree with employer’s position
However, the application judge and, subsequently, the Court of Appeal disagreed with the employer’s interpretation.
“Waksdale, which did not involve a fixed-term employment agreement, involved entirely different circumstances and has no application to this case,” it said. “Waksdale merely held that the invalidity of a particular termination clause in an employment contract voided other termination provisions in the agreement, with the result that the employee was entitled to reasonable notice upon termination of their employment.”
The Howard case
Citing the 2016 case of Howard v. Benson Group Inc., the court determined that a fixed-term employment agreement is distinct from other termination clauses, in that it does not end based on notice but rather expires at the end of the set term.
“The legal consequence was that the respondent’s employment had been wrongfully terminated,” the court explained, supporting the view that the employee was entitled to the remainder of the contract’s salary and benefits without the obligation to mitigate damages.
The appeal brought forth by the employer was dismissed by the Court of Appeal, which affirmed that the employee’s fixed-term contract was valid and had been improperly terminated. The court further clarified, “In Benson Group Inc., the invalidity of a clause providing for early termination… did not alter the legal effect of the provision fixing the term of the contract.”
The court also addressed the issue of legal costs, awarding $7,500 to K.K., which reflects the reasonable expenses incurred due to the appeal.
For more information, see Kopyl v. Losani Homes (1998) Ltd., 2024 ONCA 199 (CanLII).
