Be Careful When Using Term Contracts in the “Gig Economy”

Eric2The rise of the term contract in the “gig economy”

In our “gig economy”, employers are increasingly resorting to written term contracts, sometimes of considerable length. Employers often wish to include provisions for early termination, even where there is no just cause to end the relationship. Unsurprisingly, there are dangers in wanting 
                                       to “have your cake and eat it too.”

Recent decision is a wake-up call for employers

In Howard v Benson Group Inc., 2016 ONCA 256, the influential Ontario Court of Appeal considered the case of a senior employee who was terminated without any allegation of cause 23 months into a 5-year term contract. This case engaged some basic employment contract law principles:

  1.  At common law (judge-made law) there is a presumption that every Employment Contract, written or unwritten, includes an implied term that an employer must provide reasonable notice to an employee prior to a termination without just cause. This presumption can be rebutted if the Contract clearly specifies some other period of notice (or severance in lieu).

  2. In the Benson Group case, the early termination clause was found to be ambiguous and therefore, following leading Supreme Court of Canada decisions, was ruled to be null and void. If it had been enforceable, the employee would have only been entitled to the minimum Employment Standards notice or pay in lieu.

  3. The Trial Court decided that the terminated employee should receive common law damages, but the employee appealed, seeking to be paid the greater amount of his salary until the end of the contract term.

  4. The takeaway point of the case is that if the provision for early termination severance is not clear and unambiguous, the default position is not the payment of reasonable damages but rather payment of the employee’s pay until the end of the fixed term.

Wording is key when the intent is to limit severance on early termination to an amount equal to the minimum in the Labour Standards Code

The early termination provision in the Benson Group case stated:

“8. Termination

8.1 Employment may be terminated at any time by the Employer [the defendant] and any amounts paid to the Employee [the plaintiff] shall be in accordance with the Employment Standards Act of Ontario. [sic]”

The Court found this clause unenforceable due to ambiguity because it did not explicitly provide for the continuation of benefits during the minimum Employment Standards notice period (a requirement that we also have in Nova Scotia).

Duty to mitigate eliminated

Another consequence of the Court’s decision in the Benson Group case is that when the employer is obligated to pay the terminated employee for the balance of the fixed term, such payments are to be treated as “liquidated damages” and are not subject to mitigation, in contrast to common law damages for wrongful dismissal which are subject to mitigation. Even the agreed severance amounts payable on early termination are not subject to the duty to mitigate (assuming those provisions are enforceable).

What this means for employers in Nova Scotia

When drafting an Employment Contract, cross-referencing a legal entitlement to a statutory provision in our Labour Standards Code is dangerous. Instead, employers should use simple provisions which identify the number of weeks of notice/severance (at least equal to the minimum in the Code) and that those employee benefits as permitted by the carrier will be continued for that same length of time. The Courts can be particularly harsh where, as is usually the case, the contract has been prepared by the Employer.

In our view, the principles from the Ontario Benson Group case will be followed in Nova Scotia so you should ensure your Employment Contracts are in compliance with these developments by having your legal counsel advise you on appropriate changes.

Do you have questions about best practices for term contracts in a changing workplace?

Eric Durnford, Q.C. is a partner at Barteaux Durnford with over four decades of experience advising and advocating for employers across Atlantic Canada. He has served as the principal legal advisor for a wide range of organizations in the manufacturing, retail, fishing, mining, construction and service industries, as well as government entities and financial, educational and healthcare institutions.