A recent decision of the Ontario Court of Appeal, Howard v. Benson Group Inc., 2016 ONCA 256, has given employers and employees some guidance on early termination of fixed term contracts. Parties to a fixed term employment contract can specifically provide for early termination and specify a fixed term of notice or payment in lieu of notice. However, if there are no specifications on these points, the early termination of a fixed term agreement by an employer can be considered wrongful dismissal. A dismissed employee in this case will likely be awarded compensation for the remainder of their contract. The ramifications for the employer can be significant.
Employment lawyers receive calls from employees who have been fired for "cause" or from employers that think they have "cause" to fire an employee. These calls put us in the position of having to explain the difference between "cause" versus "without cause" termination. The difference is significant for one essential reason. In without cause terminations, employers are required to provide reasonable notice or pay in lieu of reasonable notice. On the other hand, in cause terminations, the employer is not required to provide any notice or pay in lieu of notice. Given the significant difference, employers will want to take advantage of the opportunity to terminate for cause. However, an erroneous conclusion about whether cause exists can be costly, and if the dispute ends up in court, the consequences can be severe for the employer found to have wrongly alleged cause.
Reasonable notice of termination is determined differently depending on the facts of each case, but there is no upper limit or 'cap' on reasonable notice. Generally, only exceptional circumstances will support a notice period in excess of 24 months. An increase in reasonable notice awarded by the courts was known as the "Wallace bump" from the case of Wallace v United Grain Growers Ltd. but the law has significantly evolved ever since the Supreme Court decision, Keays v Honda in 2008.
In wrongful dismissal cases, the amount of notice of termination owed to the discharged employee will depend on several factors. Length of service is one of those factors, and typically, longer term employees are entitled to longer notice periods. This is especially so for employees that have devoted a significant part of their career to a particular employer. Employees who worked through the ranks, developing expertise and knowledge in the affairs of their employer are considered vulnerable and in difficult circumstances when they are suddenly released into the labour market. The level they have achieved and the specialized knowledge they have attained may make it difficult for them to obtain other suitable employment.