B.C. decision marks beginning of broader reconsideration of fixed-term employment contract principles across Canada
Exclusive to Canadian HR Reporter from Rudner Law.
A recent decision from the British Columbia Court of Appeal represents a major departure from a well-established legal principle in Ontario, one that has guided employers and employees alike for over a decade.
In Mac’s Convenience Stores Inc. v. Basyal, the BC Court of Appeal held that employees under fixed-term contracts have a duty to mitigate their damages, unless the contract explicitly says otherwise.
This directly contradicts the rule established by the Ontario Court of Appeal in Bowes v. Goss Power Products Ltd. and Howard v. Benson Group Inc. which held that no such duty exists in the context of fixed-term employment.
This surprising divergence in the common law creates uncertainty for national employers and may ultimately require resolution by the Supreme Court of Canada.
Law in Ontario: No duty to mitigate for fixed-term employees
Since the decisions in Bowes in 2012 and Howard in 2016, Ontario courts have been clear: if an employee is dismissed early from a fixed-term contract and there is no enforceable termination clause, the employer must pay the employee the balance of the contract without any deduction for mitigation. In other words, the employee does not have to look for new work, and even if they do and earn income, that income does not reduce the employer’s liability.
The rationale behind this rule is that the parties chose to define the term of employment with a clear end date, and absent a termination clause allowing for early exit, the employer must live with that choice.
For example, an employee in Ontario on a two-year contract who is dismissed after two months will be entitled to payment of the remaining 22 months of their contract, unless the contract contains an enforceable termination clause. This would apply even if they obtained new employment after only a few months.
It is important to note that this rule applies only in the context of an employment relationship, and in normal circumstances it does not apply in the case of an independent contractor relationship.
BC Court of Appeal decision in Mac’s Convenience Stores Inc. v. Basyal
In Mac’s Convenience, the BC Court of Appeal directly considered the Howard decision, and firmly rejected its reasoning.
The decision resulted from a class-action lawsuit brought by temporary foreign workers who were employed on fixed-term contracts. The class members argued that upon dismissal, they were entitled to the full remaining value of their contracts without any duty to mitigate.
However, the BC Court of Appeal found that Howard did not reflect the law in British Columbia. The court held that:“absent a term to the contrary, an employee under a fixed-term contract has a duty to mitigate [their damages].”
This means that employees are required to make reasonable efforts to find replacement work, and any income earned during the remaining term of the contract must be deducted from their damages.
Why this decision matters
The decision in Mac’s Convenience follows previous decisions in BC that rejected the Ontario Court of Appeal’s reasoning on the issue of mitigation in fixed-term employment contracts. This creates a stark inconsistency in the law across provinces, despite no statutory differences between Ontario and BC on this issue.
This is troubling for national employers who operate in multiple jurisdictions and rely on a unified understanding of employment law principles.
It also raises serious questions for employees: does the protection offered by a fixed-term contract depend entirely on the province in which they work?
This kind of split in the law is typically where the Supreme Court of Canada may step in to provide clarity. Whether Mac’s Convenience will be appealed to the Supreme Court remains to be seen, but given the importance of the issue, it seems like a strong candidate for further review.
Discrepancy between Ontario, B.C.
Employers in BC can take the position that employees under fixed-term contracts have a duty to mitigate unless the contract clearly says otherwise. Employers in Ontario remain subject to the Bowes and Howard principles, and this inconsistency will continue unless and until the Supreme Court of Canada makes a ruling on the topic.
The decision in Mac’s Convenience Stores Inc. v. Basyal may mark the beginning of a broader reconsideration of fixed-term employment contract principles across Canada. For now, it introduces a significant discrepancy between Ontario and British Columbia, and a new layer of legal risk for both employers and employees.
Employers can avoid being liable for the remaining term of the contract by including a legally enforceable termination clause that permits early termination. If you wish to explore doing so, we recommend speaking with legal counsel.
Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
