Law Times

Page 8 January 9, 2017 • Law Times www.lawtimesnews.com Rulings show risks of early termination BY MICHAEL MCKIERNAN For Law Times E mployers should consider steering clear of fixed- term contracts altogether after two recent decisions highlighted the dangers of early termination, according to a To- ronto employment lawyer. In Howard v. Benson Group Inc., released last summer by the Court of Appeal for Ontario, the province's top court ordered an automotive service centre to pay out the remainder of a former manager's five-year contract af- ter he was terminated less than two years in. And in Ballim v. Bausch and Lomb Canada Inc., an Ontario Superior Court judge awarded damages to a former employee fired after just more than three months in a 12-month mater- nity leave cover position, despite the fact she quickly found a new, better-paying job after her ter- mination. Employment lawyer Jona- than Borrelli says both cases should make employers wary of offering contracts that specify the length of employment. "If your agreements aren't watertight, and something you didn't anticipate changes in the future, then the primary danger is that you could be on the hook for the entire length of the contract, regardless of when you want to terminate," says Borrelli, who practises with Toronto-based DMC LLP, a law firm focused on serving dental practices. He says employers tend to underestimate the value of an open-ended employment con- tract in cases of temporary em- ployment. "In my mind, there are very few instances where an indefi- nite contract is not appropriate. They are fine and suitable for al- most any type of employment," Borrelli says. The f lexibility of an open- ended agreement can be useful, he says, even when employers think they have a strong idea of how long they will need the employee. For example, in the case of a maternity or paternity leave cover, one of the most common reasons for hiring a temporary worker, the length of leave is rarely certain. "The duration is not set in stone. Some might need three months, some might take six months and others might end up taking 16 months," Borrelli says. By hiring a replacement on an indefinite contract with a sturdy termination clause that accounts for appropriate notice periods and other entitlements mandated by the Employment Standards Act, he says, employ- ers can minimize the overlap when the permanent employee returns, whether they come back earlier or later than origi- nally planned. "Getting legal advice is key," Borrelli adds. "Our motto is to hire slow and fire fast. When you're on-boarding someone, that's the time to ask questions and get help, so that you can avoid a big payment later." Rubin Thomlinson LLP lawyer Titus Totan says many employers don't realize the con- sequences of faulty or missing termination clauses until they end up in litigation. "A lot of the time, you can tell in these decisions that employ- ers are extremely shocked to dis- cover their exposure. It's incom- prehensible to them that they might have to pay a three-month employee nearly a year of sever- ance pay," says Totan, who works out of the employment law bou- tique's Toronto office. "It's not just fixed-term but also indefinite-term contracts where termination provisions are a problem if they're drafted improperly. "In Ontario, we have some very specific legal requirements on what they need to contain and, without them, they're ef- fectively just some ink stains on a piece of paper. If you're going to contract out of the common law, you need to do it properly," Totan adds. According to Stan Fainzil- berg, an employment lawyer with Toronto firm Samfiru Tu- markin LLP, the appeal court decision in Howard has given employees the upper hand when it comes to disputes over fixed- term terminations in the prov- ince by confirming that employ- ees have no duty to mitigate their damages after early termination, unless it is required by the em- ployment contract. "With mitigation no longer an issue, it does allow plaintiffs to take a harder line in negotia- tions, simply because the law as we see it right now is more fa- vourable to them," Fainzilberg says. Howard involved a sales de- velopment manager at a Bow- manville, Ont. automotive ser- vice centre hired on a five-year contract starting in September 2012 but then terminated with- out cause in July 2014. Although the employment agreement contained an early termination clause designed to limit his en- titlements to those provided for by the ESA, a Superior Court judge found the provision void for ambiguity. The same judge granted the former employee's motion for summary judgment, but he didn't order the employer to pay out the rest of his salary to the end of his contract. Instead, he awarded common law dam- ages for wrongful dismissal, which are subject to a duty to mitigate. Then, in its April 8 judg- ment, a unanimous three-judge panel of the provincial court of appeal overturned the decision. "I conclude that the motion judge erred in holding that the appellant is entitled to com- mon law damages and that a duty to mitigate applies in the circumstances of this case," wrote appeal court Justice Bradley Miller on behalf of the court. "In the absence of an en- FOCUS ON Labour and Employment Law Focus Jonathan Borrelli says two recent Ontario cases should make employers wary of offering contracts that specify the length of employment. 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