Void Termination Clause Does Not Void Fixed Term Contract.

In Kopyl v Losani Homes (1998) ( no CANLII Cite yet) Justice Harper had to decide whether a fixed term contract with an illegal early termination clause also voided the fixed term aspect of the agreement .

If the answer was YES, then the damages would be based on reasonable notice.

If the answer was NO, then the Plaintiff would be entitled to the balance of the term without any duty to mitigate nor any accounting for actual mitigation earnings.

The Court decided NO. This is what the Court said :

[15]There is nothing illegal in setting out the term limit of an employment contract. Fixed term contracts do not offend any provision of the ESA, nor do they restrict any common law rights of an employee. There is not mischief to be protected against in such circumstances.

[16]In my view, if the separate and distinct termination clauses are void, that does not void the whole contract and that includes the time limitation set out in a fixed contract.

My Commentary:

Many previous cases have said that if any component of a termination provision is void then the whole provision is void even if the other parts do not offend the ESA. If that is so, then why is a fixed term not part of the overall termination package and therefore should also be void?

This ruling can either help or hurt Plaintiffs, depending on when the termination takes place.

Scenario 1: Plaintiff has a 24 month fixed term with an illegal 30 day termination clause and is fired in month 6 . Result? Plaintiff gets 18 months of damages with no duty to mitigate .

Scenario 2: Plaintiff has a 24 month fixed term with an illegal 30 day termination clause and is fired in month 23.5. Result : Plaintiff gets 2 weeks of damages.

The argument in favour of this interpretation is that each plaintiff got what they bargained for, namely 2 years of pay .

Given the huge risks that face employers on fixed term contracts, one wonders why employers ever use them. They would uniformly be better off if they had a contract with an indefinite term with a fair and enforceable termination clause.

If you would like a copy of this case, email me at barry@barryfisher.ca

For my availability dates , go to www.barryfisher.ca