Ontario’s highest court has confirmed that employment contract provisions that will breach the Employment Standards Act (‘ESA’) in the future are void and unenforceable.¹ The Court has also confirmed that fixed-term employees who are terminated under an unenforceable termination clause are entitled to the salary they would have earned had they worked their entire fixed term.

Background

In Covenoho, the employee had a one year fixed-term contract with the employer. After being employed less than three months, the employee was dismissed without notice or payment in lieu thereof. A lower court found that because the employee had not worked the prerequisite three months for statutory notice, the employee was not entitled to any notice and was validly dismissed.

Decision

The Court of Appeal found issue with the terms of the employment agreement, namely that the termination provisions allowed the employer to terminate the employee without cause or notice. One of the provisions required no notice for dismissal and the other specified that the employer will have “no liability to [the employee], save and except to pay any accrued and earned compensation.”

Although the ESA allows an employer to dismiss an employee without notice if they have not completed three months of employment, the Court of Appeal found that the contractual provisions must be construed as if the employee’s employment continued beyond three months. The Court found that if a “provision potentially violates the ESA at any date after hiring, it is void.”

If the termination provision is void, common law termination applies. The Court found that in the absence of an enforceable termination provisions with notice, an employee with a fixed term contract is entitled to the full salary they would have earned under the contract had they worked it to completion. The salary received is not subject to mitigation.

The employee was entitled to $56,000 in damages, which was the 40 weeks of salary that remained on the contract.

Takeaways

Employers in Ontario should take particular care to ensure that their termination provisions are enforceable as common law notice and common law remedies for fixed term contract breaches can be significant. Furthermore, employers should ensure their contracts are “future-proof” by considering the statutory notice periods and ensuring their contracts do not provide for shorter notice than required by statute.