Serves as reminder for employers of dangers of fixed-term contracts, says lawyer
An adjudicator has ordered the New Brunswick government to pay the former CEO of a provincial health network the balance of his contract and $200,000 in aggravated damages after it fired him four months into his five-year term.
The case is a reminder of the dangers for employers entering into fixed-term employment contracts, says Anne Amos-Stewart, an employment lawyer at McInnes Cooper in Moncton.
“There is always the risk the employer can find themselves on the hook for the remainder of the term, like the employer did in this case.”
Interim CEO position
Dr. John Dornan is a New Brunswick-based physician. In 2018, he became the chief of staff for Horizon Health Network, one of New Brunswick’s two health authorities. In 2021, Horizon started looking for a new CEO and Dornan applied.
The New Brunswick minister of health, the premier, and the clerk of the privy council met with Dornan and offered him the interim CEO role until it was filled permanently. On Aug. 25, 2021, Dornan was announced as the interim CEO of Horizon until the provincial department of health completed its search for a new permanent CEO.
On Feb. 28, 2022, the minister of health offered the worker the permanent CEO position for a five-year term. After some negotiation of the terms, Dornan accepted the position and the minister of health announced his appointment on March 4.
Dornan started work as the permanent CEO on March 7. On March 15, he asked if there was a contract for him to review and sign. He was sent a written offer letter on March 23, although the letter was dated March 4.
Employment law experts discussed the do’s and dont’s of fixed-term contracts.
New termination clause
However, the offer letter included a termination clause allowing the minister to terminate his employment without cause with 12 months’ severance pay in lieu of notice in the first year of the agreement and less severance pay during the subsequent four years of the term.
The offer letter did not suggest that Dornan should speak with independent legal counsel before signing it.
Dornan was surprised, as there had been no discussion of a termination clause during the negotiations and he would not have agreed to the permanent position had there been one – while he was interim CEO, certain events made him concerned about the politicization of the position.
However, Dornan had already given up his previous employment. He didn’t want to jeopardize the opportunity, so he reluctantly signed the agreement on April 7.
Three months later, there was a death in the emergency room of a Fredericton hospital that caused a media backlash. An investigation concluded that the death had nothing to do with Dornan’s management of Horizon.
Employers are often surprised to learn that they don’t automatically have the option to terminate a fixed-term contract early with reasonable notice, according to an employment lawyer.
Fired before news conference
On July 14, the minister of health asked Dornan to attend a news conference the next day. While Dornan was on his way to the news conference, the premier called and advised that the minister of health had been replaced. The new minister of health came onto the call and said that the Horizon CEO “serves at the pleasure of the minister” as stated by the New Brunswick Regional Health Authorities Act, and “you are no longer employed.”
The new minister then sent Dornan a letter the same day stating that he was terminated immediately and “cause for your removal is not being alleged.”
During the news conference, the premier referred to the emergency room death and listed several changes, including the removal of Dornan.
The province invoked the termination clause and provided 12 months’ pay in lieu of notice.
Dornan was unable to find work as his previous positions were no longer available and there were no similar positions available in New Brunswick. He applied for positions outside the province, but when representatives for a similar position in Saskatchewan called, their counterparts in New Brunswick didn’t provide a good reference.
Fixed-term contracts can have probationary periods, says an employment lawyer.
Claimed breach of employment terms
Dornan filed a grievance for breach of his employment terms, requesting damages for income and benefits for the balance of his five-year term. He argued that he entered the employment relationship on March 7, 2022, upon oral agreement and the termination clause was not part of that agreement. He also claimed aggravated and punitive damages for the manner of dismissal.
An adjudicator under the New Brunswick Public Service Labour Relations Act found that Dornan negotiated a five-year term that was agreed to by the province and his employment began on March 7 when he started working in the role.
The adjudicator also found that the written contract introduced two weeks later reflected the oral agreement, with the exception of the termination clause that had been added without previous discussion.
Although Dornan signed the contract and he understood the termination clause, there was an inequality in bargaining power, the adjudicator said. When Dornan received the termination clause, in his mind he had no choice but to sign as his former jobs had been filled and he was worried about losing the opportunity. It was important to note that Dornan said that he would not have signed had the clause come up during negotiations, said the adjudicator.
“The employer’s biggest mistake in the hiring process – and probably the single most common one we see as employment lawyers – was introducing the written employment agreement after the employee had already started the role,” says Amos-Stewart. “If [Dornan] had signed it before starting work, the case likely would have turned out differently.”
Even if Dornan was a “sophisticated” employee, he couldn’t read the employer’s mind and assume there would be a termination clause that wasn’t previously discussed, the adjudicator said.
Change in contract
The adjudicator determined that the termination clause was a fundamental alteration of an existing employment contract and was therefore unenforceable without additional consideration. As result, the adjudicator found that Dornan was entitled to his salary, benefits, and car allowance for the balance of his five-year term.
The termination clause was not enforceable because the employer didn’t provide Dornan with anything of value in exchange for adding to the existing agreement, says Amos-Stewart.
“The termination clause meant [Dornan] was worse off – he was giving up the right to be paid out in full for any remainder of the five-year term upon termination,” she says. “Because of that, the employer was required to provide something of value – known as consideration – in exchange for accepting the termination clause. Continued employment cannot act as a thing of value.”
The adjudicator noted that there were differing approaches to the duty to mitigate losses from breach of a fixed-term contract, but he preferred the Ontario Court of Appeal’s approach that a fixed-term contract without an enforceable termination provision obligates an employer to pay an employee to the end of the term without any mitigation requirement.
Regardless, the adjudicator found that the province did not provide evidence that Dornan failed to adequately mitigate his losses.
Any employer that extends a fixed-term contract more than once risks making the employment continuous, says an employment lawyer.
Public, callous dismissal
The adjudicator also found that the province did not meet with Dornan in private to discuss the termination decision and the dismissal was done in a public, callous manner that diminished his “otherwise stellar reputation.”
Amos-Stewart notes that, while the province’s handling of the dismissal was what the adjudicator called “the antithesis of good faith,” the fact that the province didn’t provide Dornan with the opportunity to address the concerns of the employer was not one of the problems.
“Since the termination was without cause, there was no requirement for the employer to provide any such opportunity,” she says.
The adjudicator noted that the employer’s actions were not malicious or departing from ordinary standards of decent behaviour, so punitive damages were not appropriate given he already awarded aggravated damages. Regardless, the adjudicator’s role under the act was to order compensation to redress a wrong, not to punish, he said.
The province of New Brunswick was ordered to pay Dornan salary, benefits, and vehicle allowance for the remainder of his five-year term – equal to more than $1.6 million – plus $200,000 in aggravated damages for its breach of the employer’s obligation to act in good faith during dismissal.
Always have an employee sign the employment agreement before starting work, even if it means pushing back the start date, and tell the employee in writing to seek legal advice, says Amos-Stewart.
“Never commit to a deal that isn’t conditional on the execution of a fulsome written employment agreement,” she says. See Dornan v. New Brunswick (Health), 2023 CanLII 10433.