The high cost of fixed-term contracts and constructive dismissal

Funeral home dispute highlights need for employers to be cautious

The high cost of fixed-term contracts and constructive dismissal
Brittany Taylor

In July 2019, the Ontario Superior Court of Justice awarded an employee over $1.2 million in damages as a result of the constructive dismissal of his employment. The damages included lost commissions, benefits and expenses over the nine-year period remaining in his 10-year contract.

Readers may recall that we wrote about this decision shortly after it was released. We can now provide an update on this case, as late last year the Court of Appeal dismissed the employer’s appeal and upheld this extensive award.

The decision highlights the (potentially very costly) risks for employers posed both by improperly drafted contracts of employment, as well as constructive dismissal.


The employee, Grant McGuinty, was the third-generation owner of the McGuinty Funeral Home. In 2012, when McGuinty was 55 years old, he sold the business to new owners, Gary and Steve Eide.

As part of the sale, McGuinty entered into a Transitional Consulting Services Agreement with the company, pursuant to which he would continue to work as general manager of the funeral home for 10 years. He was entitled to a base salary, vehicle and fuel allowance, and commissions based on prepaid and prearranged funeral packages. There were no terms providing for the early termination of the agreement.

Unfortunately, conflict arose quickly between McGuinty and the new owners, in particular Gary. Gary arranged for a subordinate employee to track the amount of time McGuinty spent at the office, and required McGuinty to submit timesheets. He also advised McGuinty that he would no longer be permitted to use the company vehicle for his personal use, and failed to pay commissions that McGuinty was entitled to pursuant to the agreement.

Finally, Gary changed the locks at the funeral home without notifying McGuinty because of his unfounded suspicion that McGuinty had entered the funeral home over a long weekend for the purpose of throwing away files without authorization.

On Sept. 4, 2013, McGuinty began a medical leave of absence as a result of stress caused by work-related issues. Just over a month later, McGuinty attended a funeral for his cousin at the funeral home and discovered that his desk had been moved to the kitchen in the basement, and that his picture, and pictures of his family, had been removed from the wall by the front desk.

Shortly afterwards, McGuinty emailed Gary stating that there were a “few matters” to clear up before they could move forward, and that he would drop by the funeral home to provide an update on his medical status and continued absence due to work-related stress. He indicated he was open to a discussion to attempt to resolve issues amicably between the parties.

McGuinty did not return to work and commenced a claim on Sept. 2, 2015 alleging constructive dismissal.

At trial

The trial judge concluded that Gary’s decision to require McGuinty to return his company vehicle would have, on its own, caused the constructive dismissal of his employment. However, there was no evidence that  McGuinty treated this specific incident as a repudiation of his contract ― in fact, he made it clear to the company that he was on medical leave and “not stepping down” from his position.

However, the court found that the conduct of the company, on the whole, would have led a reasonable person to conclude that the company no longer intended to be bound by the terms of the agreement between the parties. Specifically, the judge noted that the company had:

  • improperly terminated the respondent’s use of his company vehicle
  • recruited a subordinate employee to track the respondent’s time at work, without notifying him
  • failed to pay the respondent commissions to which he was entitled
  • removed the respondent’s photograph from the funeral home
  • changed the locks to the funeral home without notice or explanation.

The trial judge rejected the company’s argument that McGuinty’s failure to object to the situation for two years while he was on sick leave indicated that he condoned the company’s conduct, noting that “[w]hat is required for condonation or acquiescence is acceptance of the new situation.”

In this case, the evidence was clear that McGuinty could not remain in his position as a result of the depression and anxiety caused by the very conduct at issue.

On appeal

On appeal, the company continued to argue that McGuinty’s delay in formally objecting to the company’s conduct for two years resulted in condonation of the conduct.

The court noted that an employee has an obligation to elect to either continue working and accept the change, or to treat the breach as bringing the contract to an end, within a “reasonable period of time” but that this is a fact-specific determination depending on the circumstances.

In this case, it was clear that McGuinty had reached out to the company to attempt to resolve his concerns, and that, as the trial judge noted, he did not continue working, as he was on sick leave.

The court found that while there was a significant delay in McGuinty’s election, that delay had to be considered in light of the fact that he was unable to return to work due to depression and anxiety directly caused by the company’s conduct, and in the context of the unique circumstances of his employment. This included a consideration of his age, his guarantee of employment until retirement at age 65, the fact that this was his family’s business, and the extensive non-competition clause set out in the agreement that would have prevented him from working within his industry.

Key takeaways

The decision of the Court of Appeal emphasizes for employers the reality that a claim of constructive dismissal will be assessed on the basis of the unique facts of each case. In particular, employers should be cautious about concluding that an employee has given up their right to pursue a claim for constructive dismissal, especially in cases where an employee is medically incapable of continuing to work for the employer.

This case also serves as a reminder to employers of the importance of having a well-drafted contract and, in particular, ensuring that fixed-term contracts are properly drafted to include an enforceable early termination clause. Had the agreement in this case contained such a clause, the damages payable to McGuinty could have been substantially reduced.

Latest stories