By Stephen Dugandzic
In a fixed-term contract, an employee is hired for a set period (e.g., 6 months, 1 year, etc.). If the employer ends the contract early without cause (i.e., without serious misconduct) and without a valid contractual right to do so, the employee can claim wrongful dismissal damages.
The general rule is:
• The employee is entitled to be paid everything they would have earned under the contract for the remainder of the term — salary, benefits, bonuses, etc.
• In many cases, there is no duty to mitigate (i.e., the employee doesn’t have to try to find a new job to reduce their losses) — though this can depend on the specific wording of the contract and local law.
This reflects the idea that the employee was hired for a definite period, and both parties expected that work (and pay) to continue until the end.
Can a Termination Provision Apply?
Yes, a termination provision in the contract can limit an employee’s damages if it is:
• Valid (i.e., complies with employment standards legislation, like minimum notice laws),
• Clear and unambiguous (any uncertainty is interpreted in favor of the employee).
A termination clause might allow the employer to end the fixed-term contract early by providing:
• A set amount of notice (e.g., “two weeks’ notice”),
• A set amount of pay in lieu of notice,
• Or some combination of both.
If the termination provision is valid and enforceable, then the employee’s damages will be limited to what the contract says, rather than full payment for the remainder of the term.
If the termination provision is invalid or unclear, the employee can claim the full balance of the contract.
Example Scenarios
• No termination clause: Employer ends a 12-month contract after 4 months. Employee gets damages equal to 8 months’ pay (no mitigation required).
• Valid termination clause: Employer ends a 12-month contract after 4 months but contract says they can terminate on 4 weeks’ notice. Employee gets 4 weeks’ pay, not 8 months.
Howard v Benson Group Inc. (2016 ONCA 256)
Facts:
• John Howard was hired on a fixed-term contract for five years as a Sales Development Manager.
• The contract had a termination clause allowing early termination with “notice or pay in lieu of notice” — but the clause did not clearly specify how much notice or pay he would get.
• After about 23 months, the employer terminated Howard without cause.
Issue:
• Was Howard entitled to damages for the remainder of the five-year term?
• Was he required to mitigate his damages (i.e., look for another job to reduce the payout)?
Court’s Decision:
• The Court ruled that the termination clause was ambiguous and unenforceable because it wasn’t clear about what Howard would receive if terminated early.
• Since there was no valid termination provision, Howard was entitled to the full amount of salary and benefits he would have earned for the remaining 37 months of his contract.
• No duty to mitigate: The Court confirmed that when a fixed-term contract is wrongfully ended early and there’s no valid termination clause, employees are generally entitled to the full balance without having to mitigate.
Key Takeaways:
• Fixed-term employees are entitled to the full balance of the contract if the employer terminates early without a clear, enforceable termination clause.
• Ambiguous termination clauses will be interpreted against the employer.
• No obligation to mitigate if the fixed-term contract is wrongfully terminated without a valid exit provision.
*Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018.