Fixed-Term Contracts: Clarity and Mitigation

Stewart v. DIGI Canada Inc. – Alberta Court of Queen’s Bench – November 2, 2007

The termination of a fixed-term employment contract by the employer prior to the completion term may result in the payment of the remaining balance as long as the contract was unambiguous and the employee mitigated their damages.

The November 2, 2007 decision by the Alberta Court of Queen’s Bench on Stewart v. DIGI Canada Inc. [2007] A.J. No. 1434 (“Stewart”) provides some clarification on fixed-term contracts. The ruling indicates that if a fixed-term contract is terminated prior to the period clearly agreed to by the employee and employer, and the employee mitigates their damages, then the remaining balance will be paid to the employee by the employer.

In Stewart, the employee originally worked for the employer as an employee with an employment contract of indeterminate duration. The employee was terminated from this position and given a twenty-six week severance package. After his dismissal, the employer decided to rehire the employee. The employer offered reemployment, yet the employee turned it down fearing that there was no guarantee of continued employment. A second offer for reemployment was made for a five year fixed term contract, but the employee would only agree to a three year term.

After the employee agreed to be reemployed, the employer hired a new president who subsequently proposed that the employee take a reduction in pay. The employee responded by stating that he would not accept any changes to his contract, however the new president unilaterally reduced the employee’s salary. The employee retained counsel and had the president readjust his pay to what it originally was. Following this, the president proposed a new employment agreement to the employee as a replacement to his then current contract. It included a reduction in pay and a monthly vehicle allowance instead of the use of a company vehicle. Again, the employee refused the changes. Consequently, the employer terminated the employee and provided termination pay in the amount of “about four months salary”.

The employee sued the employer for the remaining balance of the employment term stated in the contract, as well as the related benefits. The Trial Judge found that there was nothing ambiguous in the written agreement and that it clearly provided for guaranteed employment for three years. However, the Trial Judge also indicated that the common law states that employees who have a fixed contract have to mitigate their damages. Finding that the employee had done so, the full amount of the remaining balance and the related benefits were to be paid to the employee, only deducting the amount already paid to the employee and the income made during the mitigation period.

The ruling in Stewart highlights an important characteristic of fixed-term contracts for both employees and employers. If such a contract is unambiguous in guaranteeing the full term stated in the contract, then the employer must fulfill this amount indicated, or provide the employee with the remaining balance if the period of employment ends earlier. However, this obligation placed on the employer is not automatic. Even though the employment contract stated a guaranteed period of employment, the employee must fulfil their duty to mitigate their damages in order to receive what was contracted for.


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