In Howard v. Benson Group, the Court of Appeal found the Employer liable for the balance of their Sales Development Manager’s five-year term contract, which Benson Group terminated, without alleging cause, after 23 months.
Background
Benson Group employed the Employee pursuant to a signed written employment contract with a five-year term. He was terminated without cause after only 23 months. The Employee brought an action for breach of contract, seeking payment of his compensation for the remaining period of the contract, being more than three years’ salary. Although the Summary Judgment Judge, found the early termination clause in the Contract to be sufficiently ambiguous as to be unenforceable, he did not award him the balance of his contract, instead he awarded the Employee common law damages for wrongful dismissal, subject to mitigation, to be assessed at a trial of an issue.
The Decision
The Court of Appeal allowed the appeal and held there is a common law presumption that every employment contract includes an implied term an employer must provide reasonable notice to an employee prior to the termination of employment. Absent an agreement to the contrary, an employee is entitled to common law damages due to the breach of that implied term. This presumption can only be rebutted if the employment contract clearly specifies some other period of notice, whether expressly or impliedly. Where an employment agreement states unambiguously the employment is for a fixed term, the employment relationship automatically terminates at the end of the term without any obligation on the employer to provide notice or payment in lieu of notice. Such a provision, if stated unambiguously, will oust the implied term that reasonable notice must be given for termination without cause. If parties to a fixed term employment contract do not specify a predetermined notice period, an employee is entitled on early termination to the wages the employee would have received to the end of the term.
The Court further held if an employer does not use unequivocal, clear language and instead drafts an ambiguous or vague termination clause that is later found to be unenforceable, it cannot complain when it is held to the remaining terms of the contract. A contractually fixed term of notice is distinguishable from common law reasonable notice and the duty to mitigate does not apply to liquidated damages or contractual amounts. In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation.
Lessons for Employers
When bargaining for certainty by providing a potential employee with a fixed term contract, have employment counsel review the contract, especially the termination clause in the contract, so as to not have to pay the employee the balance of the fixed term contract.
Lessons for Employees
Have experienced employment counsel review all employment contracts, so as to receive advise as to whether the various terms of the contract, including the termination clause, would be enforceable.
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.
Sign up for our e-Newsletter for the latest updates and case studies in employment law.