In a recent decision, the Ontario Superior Court of Justice held that a constructively dismissed employee was entitled to the compensation he would have received during the nine years remaining in the term of his employment agreement.
For many years, Grant McGuinty and his brother Maurice owned and successfully operated a funeral home in North Bay. The McGuinty Funeral Home, which was started by their grandfather, was a respected presence in the community.
After Maurice became ill, Grant sold his shares in the business to 1845035 Ontario Inc., a company controlled by Gary and Steven Eide. It was a term of the share purchase agreement that McGuinty would enter into a ten year fixed-term Transitional Consulting Services Agreement (“TCSA”) with the company, by which he would become an employee of the funeral home.
Not long after the sale, McGuinty’s relationship with the Eide brothers began to deteriorate, and he took a medical leave as a result of workplace stress.
He subsequently commenced legal proceedings against the purchaser company on the basis of an alleged constructive dismissal of his employment. He sought damages for breach of the TCSA, intentional infliction of mental suffering and discrimination prohibited by the Ontario Human Rights Code.
Reviewing the breakdown of the relationship between the parties, Justice Gordon of the Superior Court of Justice concluded that the defendant had indeed constructively dismissed McGuinty. He noted that over a period of several months, the defendant had, among other things, improperly terminated McGuinty’s use of the company vehicle, failed to pay him commissions to which he was entitled, and changed the funeral home’s locks without notice.
As there was no provision in the TCSA to address early termination of the agreement, Gordon J. applied the decision of the Ontario Court of Appeal in Howard v. Benson Group Inc. that where a fixed-term contract does not contain an enforceable termination provision, a discharged employee is entitled to payment for the unexpired portion of the contract.
This amounted to a staggering $1,274,173.83.
Key Takeaways
This decision serves as a reminder to employers that terminating a fixed-term employment contract early can prove very costly. However, while the outcome of this case was painful for the defendant, had certain steps been taken during the original sale of business, this could have been avoided.
When drafting fixed-term contracts, employers should consider the following practices:
- specify the period of notice to which the employee is entitled in case of early termination by the employer for any reason;
- expressly state that the employee will have a duty to mitigate in the event of early termination; and
- clearly describe the employee’s entitlement to compensation, benefits and any other privileges.
Given the potentially steep cost of getting it wrong, employers should obtain legal advice when preparing fixed-term employment contracts for new hires. They should also review — and consider revising — their existing fixed term employment contracts.
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