Two courts clarify that invalid termination clause doesn’t affect fixed-term clause
In a recent decision, the Ontario Court of Appeal addressed the complexities surrounding fixed-term contracts and termination clauses. In Kopyl v. Losani Homes, the court clarified that an invalid termination clause does not invalidate a fixed-term clause, reinforcing important considerations for employers. Let's delve deeper into the key aspects of this ruling and its implications for employers in Ontario.
The case revolved around an employee hired under a one-year fixed-term contract, which included termination clauses. When the employer terminated the employee's contract prematurely, a dispute arose regarding the validity of the termination clauses and the employee's entitlement to compensation.
The employee contended that the termination clauses were void due to contravention of the province’s Employment Standards Act, 2000 (ESA). As a result, she argued that she was entitled to receive compensation for the unexpired portion of the fixed term without any duty to mitigate damages.
The employer acknowledged the invalidity of the termination clauses but argued that this invalidated the fixed-term clause as well. Therefore, the employer asserted that the employee was not entitled to compensation for the unexpired portion of the term and, instead, was subject to "reasonable notice" at common law.
Fixed-term clause distinct from termination clause
The lower court ruled in favour of the employee, emphasizing that a fixed-term clause is distinct from a termination clause. Consequently, despite the invalid termination clauses, the fixed-term clause remained in effect, entitling the employee to compensation for the unexpired term without any duty to mitigate.
The appellate court upheld the lower court's decision, emphasizing that an invalid termination clause does not invalidate a fixed-term clause. The court clarified that the employee was entitled to compensation for the unexpired term without any duty to mitigate damages.
The ruling underscores the importance of carefully drafting employment contracts, particularly regarding termination clauses and fixed-term arrangements. Employers must ensure compliance with employment legislation to avoid potential legal liabilities.
Key takeaways for employers
Review employment agreements: Employers should regularly review and update employment agreements, ensuring compliance with current legislation and legal standards.
Seek legal guidance: It’s advisable for employers to seek the guidance of experienced employment counsel when drafting employment agreements, especially regarding termination clauses and fixed-term arrangements.
Consider individual circumstances: Each case is decided based on its unique facts. Employers should carefully consider the specific circumstances of their workforce when drafting employment agreements ensuring that they are not provided perfunctorily just to satisfy minimum requirements.
Stay informed: Given the evolving legal landscape, employers should stay informed about relevant court decisions and legislative changes that may impact employment practices.
Ronald S. Minken is the founding lawyer and managing principal of Minken Employment Lawyers, an employment law boutique in the Greater Toronto Area.
