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Termination clauses: Not just for indefinite employees

termination clausesIn a recent decision, Ontario’s Divisional Court reminds us of the importance of proper termination clauses in fixed term contracts. In Ferguson v. Mitsche & Aziz Inc., the Divisional Court upheld a Small Claims judgment awarding the maximum $25,0000.00 limit in damages to an employee who was dismissed five months into her one-year fixed term contract.

The facts of the case were fairly straight forward. The plaintiff, Ms. Ferguson, was hired by the Defendant employer for a one-year contract. The entire contract of employment consisted of the following offer letter:

Please be advised your one year contract employment [sic] with Mitsche & Aziz Inc. starts October 01, 2014, at hourly rate of $25.00, to be reviewed in 3 months based on your performance.

You entitle [sic] 5 weeks’ paid vacation annually, with maximum tow [sic] week at a time based on work load.

We require 4 weeks’ notice before your quoting [sic] the job.

Should you agree on above, please sign and return to me.

The plaintiff was dismissed in March, 2015 on the basis of a work slow down. She sued for the balance of her contract. At trial, the deputy judge awarded the plaintiff the balance of her contract. The Deputy Judge determined that the plaintiff’s total annual income would have been approximately $52,000.00, and awarded her 7/12th of that amount, less income earned in mitigation. The net recovery exceeded the Small Claims Court jurisdiction.

On appeal, the defendant argued that the Deputy Judge had erred by awarding the plaintiff the balance of her contract by failing to recognize that the contract did not guarantee the plaintiff any particular hours of work.  In other words, the contract was silent as to hours of work and could not form the basis of a damage award based on seven months of full time hours. The defendant argued it was an error to infer that the plaintiff’s hours of work were going to be consistent.

The Divisional Court disagreed. Although no hours of work were included in the document, evidence at trial confirmed that the parties expected it to be a full time position. In fact, the plaintiff did 38-40 hours per week until she was terminated.

The Court further noted that while they may have calculated the damages award differently, such as dividing the amount actually earned over the first five months by five, and then multiplying by seven rather predicting an annual amount and providing 7/12th, the trial judge was entitled to deference. In either case, the results exceeded the Small Claims jurisdiction.

The takeaway

This decision provides two important takeaways:

  1. While employees with “fixed term” contracts are not entitled to reasonable notice of termination, they are entitled to the balance of their contract absent a valid termination clause.
  2. Judges will be willing to look at the actual nature of the employment relationship to fill in any gaps in a contract of employment, such as hours actually worked. As always, any ambiguity will likely be read in the employee’s favour.

Although employers and employees may be tempted to discount the underlying decision on the basis that it was a Small Claims decision, it is important to recognize that a significant number of employment disputes will fall within the jurisdiction of the Small Claims Court. Additionally, with the proliferation of fixed term contracts in the workplace, this decisions should serve as a reminder that termination clauses are just as, if not more, important in fixed term employment than employees of indefinite duration.

Ferguson v. Mitsche & Aziz Inc., 2018 ONSC 6021, can be found here.

Devan Marr

Devan Marr is a lawyer at Strigberger Brown Armstrong LLP. With two offices located in Toronto and Kitchener/Waterloo, the firm offers a full range of legal services to our industry partners in insurance and risk management. The firm aims to provide its clients with focused, practical, and cost efficient legal advice. Devan primarily defends insurance claims with a particular interest in the intersection of the contractual, statutory and common law obligations of parties in long-term disability and employment practice liability claims. His practice also includes providing employment related legal advice to both employers and employees in the context of contract negotiations, evaluation of termination clauses, workplace investigations, and assessment of exposure to wrongful dismissal claims.
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