eCaseNote 2008 No. 04

Scratching the Surface of Fixed Term Employment Contracts

Monjushko v. Century College Ltd., 2008 BCSC 86 Orr v. Magna Entertainment Corp., 2008 63 CCEL (3d) 132

Fixed term employment contracts are frequently used by employers for a variety of reasons and it is therefore important to have a good understanding of the issues they raise. The two decisions discussed below shed an interesting light on two issues that may arise when a fixed term employment contract comes to an end: the requirement of notice and the duty to mitigate.

The general requirement of notice is well understood in a normal employee/employer relationship. That is, a terminated employee must receive a reasonable amount of notice prior to termination and, if this notice is not granted, then damages in lieu of that notice may be awarded. A fixed term employment contract is normally an exception to this requirement, due to the fact that both parties know from the outset when the contract will terminate. However, in the right circumstances, courts may take a different view.

In Monjushko, the employee began work with a community college in January 1996. He was hired on a fixed term contract for each semester worked. Each appointment letter (i.e. contract) was essentially identical to the preceding one, with only the start and end dates and course to be taught changing. From January 1996 to April 2005, Monjushko was supplied with 40 such appointment letters.

In October 2004, the college realized it would not be able to renew Monjushko’s contract after April 2005. Regardless of this, it issued a final appointment letter to Monjushko in January 2005, which remained silent on his upcoming termination. When Monjushko was informed in April 2005 that his contract would not be renewed, he sued for damages in lieu of reasonable notice. Century claimed that no damages were payable as Monjushko was on a fixed term contract. The BC Court determined that even though the employment was technically a series of fixed term contracts, this fact cannot obscure the underlying reality of the employment situation. The Court determined that, due to the actions of the parties and in the context of the particular factual situation, this relationship was of an indefinite, not fixed, term. Ultimately, Monjushko was awarded 15 months reasonable notice.

Another issue is the duty to mitigate. This duty is present in all breach of contract claims, including employment contracts, and refers to the duty placed upon the person claiming damages to do whatever they can to minimize those damages. However, as the Orr case exhibits, there can be exceptions to this rule.

In Orr, a well paid Magna senior executive was offered the position of CFO at a Magna subsidiary. In taking this position, Orr entered into a generous fixed term employment contract that, among other things, specified 24 months of severance payable if he was terminated before the first 3 years of the agreement had lapsed. After the 3 year mark, this severance was significantly reduced. In either situation the severance was payable within 30 days of termination.

As things turned out, Orr was removed from his position 6 months before the 3 year deadline. He was moved to a lesser position and told that a comparable position was being found for him. Orr was worried that Magna was stringing him along in order to keep him on long enough to terminate him after the 3 year mark. These fears were assuaged by Magna. This process continued until 9 days after the 3 year mark, when Magna informed Orr there was no comparable position available, and he was to be terminated with the lesser severance package. Orr sued Magna for the full 24 months severance and Magna defended, saying that Orr had taken the lesser position and was still employed up until the final termination.

The Ontario Court determined on the facts that Orr, by agreeing to forego his demands of severance based only on Magna’s assertions that a comparable position was being located, should be awarded his full severance plus interest. The Court also cited with approval a prior Ontario decision in Graham v. Marleau, Lemire Securities Ltd., stating that the duty to mitigate applied to fixed term employment contracts, including where there was an agreed-upon severance provision. However, there are certain situations where the duty to mitigate can be waived. This waiver may be accomplished: (a) by expressly waiving the duty in the contract; (b) by having an express obligation in the contract that continues payments after termination; or (c) implicitly, when severance is paid immediately or shortly after termination. In Orr, the Court found there was an implied waiver of the duty to mitigate, as the severance was contractually stipulated to commence 30 days after the termination.

Fixed term employment contracts do have their advantages for an employer, but there are issues the employer must be aware of in order to meet its goals. These two cases illustrate a couple of these issues. Notice requirements and the duty to mitigate should be considered in the creation of any fixed term employment contract in order to alleviate potential future litigation headaches.

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