‘Without cause’ provision incorporated statutory termination entitlements
A “without cause” termination provision that incorporated the statutory entitlements from employment standards legislation is valid for an employer that terminated a worker’s fixed-term employment contract early, according to a Manitoba court.
The worker had his own electrical contracting business with his wife, which they sold in 2021 to Colin’s Mechanical Service, a Winnipeg-based provider of plumbing, heating, gas, and air conditioning service and repairs.
The share purchase agreement (SPA) included $250,000 payable in four annual instalments beginning on the first anniversary of the closing date of the transaction. It also had a condition that the worker enter into a four-year fixed-term employment agreement with Colin’s Mechanical, expiring on July 31, 2025.
Termination provision
The employment agreement included a termination clause allowing Colin’s to terminate the worker’s employment “at any time during the term” without cause “subject to notice or payment in lieu of notice or some combination of notice and pay in lieu, in accordance with the Employment Standards Code of Manitoba.” A “without cause” termination wouldn’t affect the outstanding balance of the SPA.
There was also a “with cause” termination provision that listed several examples of conduct that would provide just cause for termination without notice or payment, including
“just cause as construed at common law.”
On April 1, 2024, Colin’s informed the worker that his employment was being terminated effective May 1. The worker sued for wrongful dismissal, asserting that Colin’s owed him his pay for the balance of the fixed-term contract. He argued that the without-cause termination provision was ambiguous and therefore unenforceable due to its alleged unreasonableness or non-compliance with the code.
The worker also argued that the with-cause termination provision was unenforceable because it imposed a stricter standard for cause that that in the code. This rendered all termination provisions invalid, the worker said.
The worker found alternate employment at a lower salary on Aug. 26, so he sought to recover the difference in the balance of his fixed-term contract and his income from his new job - $44,928.62.
Fixed-term contracts
The court noted that fixed-term contracts that are terminated early without a termination provision would leave the employee with wages and benefits for the balance of the contract. However, in this case the employment agreement clearly and unambiguously incorporated the statutory notice and wage in lieu of notice provisions of the code, the court said.
Noting that the principles of contract interpretation favours “the ordinary and grammatical meaning,” the court found that the “without cause” provision allowed Colin’s the right to terminate the worker’s employment at any time during the four-year term of the agreement with notice obligations “in accordance with the Employment Standards Code.” The plain meaning of the words was to “replace the employer’s usual obligations on termination of a fixed-term contract with those contained in the code,” said the court.
The court also found that the parties intended to limit the worker’s rights on termination to those provided by the code rather than entitling him to payment for the unexpired term of the contract, pointing out that the “without cause” provision explicitly stated that it wouldn’t affect the worker’s right to the outstanding balance from the PSA – showing that the parties had considered the financial consequences in the event of a without-cause termination – but the “without cause” provision didn’t have a statement saying the worker’s right to the balance of the contract wouldn’t be affected.
In addition, the PSA had a provision stating that if the worker terminated the contract early, the purchase price would be reduced by the outstanding balance, while there was no similar guarantee of wages and benefits for an unexpired term of employment if the company terminated early, the court said.
“What all of this suggests to me is that the parties considered the financial consequences to each side in the event of the early termination of [the worker’s] employment and made a deliberate choice to incorporate the statutory notice requirements contained in the code in the ‘without cause’ termination provision,” said the court.
The court also found no ambiguity in the “without cause” provision, as incorporating the notice provisions from the code was reasonable.
Just cause
Regarding the “with cause” termination provision, the court found it wasn’t more strict than the “just cause” provision in the code – which states that statutory notice obligations on employers doesn’t apply “when the employment of the employee is terminated for just cause.” The code doesn’t define “just cause,” so determining whether a breach of the examples listed in the provision would require an assessment of the misconduct and the context in any circumstances where just cause is alleged, the court said.
The worker also argued that he was entitled to eight weeks’ notice based on his prior service with his business before he sold it to Colin’s, but the court pointed to the SPA’s stipulation that the prior business terminated all existing employees and would pay all termination entitlements. The worker didn’t provide any evidence on whether he received any termination pay from the prior business, so the court couldn’t reach a conclusion on this aspect of the worker’s claim.
The worker’s claim was dismissed. See Hebert v. Colin’s Mechanical Service Ltd., 2025 MBKB 87.
