The Dangers of Cancelling a Fixed-Term Contract Early

While most employees can be terminated and provided with the appropriate termination notice or pay-in-lieu, different rules apply to fixed-term employees. This article provides an analysis of McGuinty v. 1845035 Ontario Inc. (McGuinty Funeral Home), 2019 ONSC 4108, and outlines the dangers associated with cancelling a fixed-term employment contract early.

About one year ago, the Ontario Superior Court of Justice awarded an employee $1.27 million after he was constructively dismissed almost 1 year into his 10-year fixed-term contract.

Recently, the Ontario Court of Appeal upheld the lower court’s decision and awarded the employee an additional $30,000 in costs.

The Lower Court Found Constructive Dismissal

In the lower court decision, the plaintiff, Mr. McGuinty, had a family-run funeral home business that operated out of his grandfather’s home in North Bay. After his brother could no longer continue to work for the business, Mr. McGuinty sold the successful funeral home business to the defendant company.

In 2012, the owners of the defendant company agreed to employ Mr. McGuinty as a General Manager for 10 years. Through a fixed-term employment contract, Mr. McGuinty was to receive $100,000 per annum, plus commission and other benefits such as a company vehicle.

Within months, Mr. McGuinty’s relationship with the defendant broke down. In September 2013, less than a year into his employment, he commenced a medical leave resulting from workplace stress.

In September 2015, Mr. McGuinty filed his legal claim.

The Decision

The lower court assessed the defendant’s conduct, including removing Mr. McGuinty’s access to the company vehicle, changing the locks, and not paying him his commissions, and concluded that Mr. McGuinty had been constructively dismissed.

Importantly, there was no cancellation provision in the employment contract. As such, Mr. McGuinty was awarded payment in the amount of the unexpired portion of his contract. The trial judge considered the remaining 9 years on the fixed-term contract, along with commissions, benefits, and expenses, and awarded Mr. McGuinty a whopping $1,274,173.83.

The trial judge also relied on an earlier decision and stated this award is not subject to mitigation.

The Company’s Unsuccessful Appeal

The defendant company appealed the decision to the Ontario Court of Appeal (the “Court”). The company argued, among other things, that Mr. McGuinty condoned the company’s actions.

The Legal Test

The two ways an employee may establish constructive dismissal are that:

• the employer unilaterally breaches an essential term of the employment contract, or
• the employer’s conduct establishes that it no longer intends to be bound by the employment contract.

The employee must establish that the failure to return to work was causally linked to the alleged conduct.

An employer defence to constructive dismissal is condonation. This means, in situations where an employee acquiesces or consents to the change to an essential term of employment or employer conduct, s/he cannot claim constructive dismissal.

Mr. McGuinty did not condone the Company’s actions

Under the first branch of the test, Justice Huscroft agreed with the lower court that although Mr. McGuinty objected to the loss of the company vehicle, he also confirmed that he was not stepping down from his position. This contributed to Mr. McGuinty not treating the removal of the vehicle as a repudiation of the employment contract.

However, under the second branch of the test, the company’s course of conduct demonstrated that it no longer intended to be bound by the terms of the employment contract, amounting to Mr. McGuinty’s constructive dismissal – which also means the fixed-term contract was cancelled early.

The Court rejected the argument that Mr. McGuinty’s time away on sick leave without notice amounts to condonation, as Mr. McGuinty did not accept the new situation.

Generally, condonation is found where the employee continues to work despite the employer’s actions. This includes the employee having a “reasonable period of time” to resolve the problems before filing a legal claim. As such, an employee’s unique personal circumstances are explored before concluding that they have lost the right to sue for constructive dismissal.

In Mr. McGuinty’s circumstances, the key issue was the length of time between the employer’s conduct and Mr. McGuinty electing to sue for constructive dismissal. However, Justice Harcroft restated the unique circumstances that led to Mr. McGuinty’s delay. For example, he was 55 years old and had worked at his family business for nearly three decades. After selling it to the company, he was subject to a non-competition clause that prevented him from working in his community in the only profession he had known. Considering such factors, the Court found that Mr. McGuinty elected to sue for constructive dismissal within a reasonable amount of time.

Takeaways

This case emphasizes the importance of having a well-drafted fixed-term employment contract which includes provisions on the duty to mitigate and termination or cancellation. Otherwise, an employer making fundamental changes to or cancelling a fixed-term contract early can be a pricey move.

Contact Us

If you are an employer facing a constructive or wrongful dismissal claim, or an employee who has been constructively or wrongfully dismissed, our team of experienced employment lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

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