Termination of contract by either party
Question: Where a fixed-term employment contract has no termination clause, what happens if the employer terminates the contract before the end of the term? Can the employee give notice of termination before the end of the contract? If the employee gives notice, can the employer refuse the notice and terminate immediately with no further liability?
Answer: Where an employee has a fixed-term employment contract, the employment relationship ends on the expiry of the fixed term, unless the contract is extended or renewed. In this situation, the employer has no obligation to provide any notice or severance compensation, unless that requirement appears in the contract.
Many fixed-term employment contracts contain a provision that allows the employer to dismiss the employee during the term, by providing a specified amount of notice or severance. But what happens if no such clause exists, and the employer wants to dismiss the employee without cause before the term expires? Where this occurs, the termination of the employment relationship before the end of the term amounts to a breach of contract by the employer. While reinstatement to employment may be available in this situation in Québec (see Boivin v. Orchestre Symphonique de Laval 1984 Inc.), employees in the common law jurisdictions will likely be limited to an action for wrongful dismissal damages. In awarding damages, the court will seek to place the employee in the financial position she would have been in had the contract been performed — had the employee worked until the end of the fixed term. This calculation will include a deduction for any mitigation earnings during the balance of the term.
Employers should be mindful of special statutory requirements that may exist in their jurisdiction. In British Columbia, for example, section 5 of the Employment Termination Standards (B.C. Reg. 379/97) established under the Public Sector Employers Act, provides that where a public sector employer dismisses an employee without cause during a fixed-term contract, the employee’s notice or severance entitlement is limited to the value of the salary and benefits the employee would otherwise have been entitled to over the remaining term of the contract, or an amount provided under common law calculated as though the employee were subject to an indefinite term agreement with no provision regarding severance, whichever is less.
If an employee quits before the expiry of a fixed term contract — and if the contract doesn’t contain language permitting early resignation — the employee’s action will amount to a breach of contract. Where this happens, a court will not issue an order requiring the employee to return to work, but the employer may be able to pursue an action for damages for wrongful resignation. The challenge for an employer in this type of situation is that it must prove it suffered foreseeable damages arising from the employee’s failure to work until the expiry of the contract, not from the resignation itself. This is often difficult, and as a result wrongful resignation cases are usually limited to situations involving key employees who have departed at critical times or to compete unfairly.
If an employee who has a fixed-term contract gives notice of resignation effective on a future date that is earlier than the expiry date of the contract, the employer’s ability to dismiss the employee immediately will depend on whether the employee’s conduct amounts to a repudiation of the contract. As discussed in the B.C. Court of Appeal decisions in Zaraweh v. Hermon, Bunbury & Oke and Giza v. Sechelt School Bus Service Ltd., the legal effect of giving inadequate notice of termination of an employment relationship will depend on all the circumstances of the case. An employer should seek legal advice before dismissing an employee summarily in this situation.
For more information see:
• Boivin c. Orchestre Symphonique de Laval 1984 Inc., 1992 CarswellQue 111 (Que. S.C.).
• Zaraweh v. Hermon, Bunbury & Oke, 2001 CarswellBC 2195 (B.C. C.A.).
• Giza v. Sechelt School Bus Service Ltd., 2012 CarswellBC 22 (B.C. C.A.).
