In my January 23, 2015, post on First Reference, I discussed a recent Ontario Superior Court case entitled Tossonai v. Cynphany Diamonds Inc., 2014 ONSC 7848 whereby the court held there was no operative fixed term contract. I also outlined the dangers that poor contract drafting can result in the finding of a fixed term contract that if breached would require payment of the balance of the contract.
Recently, the British Columbia Supreme Court released a decision in Alsip v. Top Rollshutters Inc. doing business as Talius, 2015 BCSC 1166, whereby poor contractual drafting on the part of the employer resulted the court finding that there was an operative three-year fixed term that could only be terminated early by paying the balance of the contract as damages minus any amounts earned as mitigation.
No early termination clause
In this case, the company initially prepared a contract for the employee to act as its director of sales. The employee wanted to ensure that he had sufficient time to grow into the role, so he requested a three-year term. The company then amended the first draft of the offer with increases to base pay, car allowance and vacation and also including the following sentence, “a three-year employment contract.” The company did not include a clause that governed the early termination of the employment contract on a without-cause basis.
After nine months, the company terminated the employee’s employment and sought to pay him a total of eight weeks of severance. The employee sued for the balance of the three-year fixed-term contract. The issue in dispute was whether or not there was in fact a three-year fixed-term contract.
Was the contract for a fixed term?
The Court made the following findings:
- The employment contract was the best evidence of the parties’ intention and both parties agreed that they wanted an employment contract of three-year duration
- Given the company drafted the employment agreement, the company was bound by the terms it used
- There was no early termination clause and it was up to the company to include such a clause when it prepared the employment contract
The Court ruled that the employee was entitled to the balance of the contract minus any amounts he had earned as mitigation income.
Conclusion
This case clearly illustrates the need for employers to be careful in drafting fixed-term contracts and to always ensure that there are early termination clauses which limit the employer’s liability on termination so as to avoid paying out the balance of the fixed term.
Proper drafting goes a long way to avoiding these issues.
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