Canada: Fixed-Term Trap? Court Throws Out Employer's Early Termination Provisions And Awards Former Employee The Balance Of The Contract

In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, Justice Pierce found the early termination provisions of a fixed-term contract were unenforceable and awarded Ms. Dufault damages for the remaining term.

On November 24, 2022, Ms. Dufault executed a fixed-term contract with the Corporation of the Township of Ignace (the "Township"), under which her employment was set to end on December 31, 2024. The Township terminated Ms. Dufault's employment without cause, effective January 26, 2023. Ms. Dufault sued the Township, contending the contract's termination provisions were unenforceable and asking the Court to award her damages for the balance of the contract.

Justice Pierce held that the contract's termination provisions were unenforceable for the following reasons:

1. The without cause termination provision provided for the payment of "base salary," rather than "regular wages," contrary to section 60 of the Employment Standards Act, 2000 ("ESA");
2. The without cause termination provision did not reference the payment of vacation pay on termination;
3. The without cause termination provision did not explicitly mention certain components of the employee's compensation, including her entitlement to 5 days of paid leave per year to compensate her for overtime hours;
4. It stated the Township could terminate Ms. Dufault's employment without cause "at its sole discretion," when the ESA prohibited it from doing so in certain circumstances; and
5. The termination for cause provision permitted the Township to withhold termination pay (and severance pay, if applicable) in circumstances where it was required to be paid under the ESA.

As a result, the Court awarded Ms. Dufault approximately $157,071.57 in damages representing her expected earnings for the remainder of the term of the contract.

This case is an outlier that has taken the application of the Waksdale v. Swegon North America Inc. principles far beyond the pole. However, it stands as an important reminder that employment contracts must comply with the ESA and employers are prohibited from contracting out of their obligations under the ESA. Employers should have their employment contract templates reviewed regularly to ensure compliance with the law.