Employers often believe that offering fixed-term contracts to staff can reduce severance or termination costs. While this may be true in some cases, the reality is that fixed-term contracts often carry significantly more risk than a well drafted employment agreement for indefinite employment, as illustrated in Elder v. Max Wright Real Estate, 2023 ONSC 5661 (CanLII).
Briefly, Mr. Elder was hired by Sotheby’s (the Defendant) as a real estate agent pursuant to a one-year fixed term contract beginning June 10, 2021. The relevant term of the contract read as follows:
3. In the event no renewal Agreement is executed, and the Contractor continues to provide services to the Company, this Agreement will be deemed to be extended for a period of one year and the parties agree to be bound by all the terms, provisions, and conditions of this Agreement as if it has not expired.
Mr. Elder continued working past his one-year anniversary, and his contract was accordingly extended for another year, until June 10, 2023. However, Sotheby’s made the decision to terminate him on July 5, 2022, 11 months shy of the new end date. Mr. Elder then commenced legal action claiming that he had been wrongfully dismissed and seeking 11 months of wages, the remainder his contract, despite the fact that he had found a job with another brokerage only six days after being terminated.
On summary judgement, the Court upheld a well-established principle regarding the termination of fixed-term contracts – absent an enforceable early termination clause, the terminating party owes the non-terminating party damages equal to the amount that would have been earned under the contract for the duration of its term, subject to the nonterminating party’s duty to mitigate (para 7).
Unfortunately for Sotheby’s, the court found that while Mr. Elder’s contract did contain an early termination clause, it was unenforceable. Accordingly, Mr. Elder was awarded damages equivalent to the balance of his contract, in the amount of 11 months of wages (less his earnings from his subsequent brokerage).
We often ask employers to reconsider using fixed-term agreements, even if the parties have a clear end date for the contract in mind. In many cases, a well drafted employment agreement of an indefinite term containing a clear and enforceable termination clause can provide increased flexibility to both parties while significantly reducing potential termination costs.
If you need advice on introducing, reviewing, or updating your employment or contractor agreements, please contact a member of our team at [email protected] or complete our contact form here.