The fix is in? Court rules unenforceable termination clause does not invalidate term in fixed term contract
In the 2023 decision of Kopyl v. Losani Homes (1998), a former employee of Losani Homes (“LH”) brought an application to the Ontario Superior Court requesting an interpretation of a one-year fixed term employment agreement between themselves and LH. The two issues in front of Justice Harper were as follows: whether a clause setting out a fixed term of employment can be considered a termination clause; and ii) whether an unenforceable termination clause in a fixed term contract invalidates the fixed term. LH had conceded that the termination clause at issue was unenforceable.
If question two was answered in the affirmative, it would effectively convert the employment relationship from a fixed term into one of indefinite duration, where reasonable notice of termination at common law would be owed to the former employee. Notably, the former employee argued that the unenforceable termination clause did not invalidate the fixed term of the contract, and that under the general principles applicable to fixed term contracts, she should be paid out the balance of the agreement.
Justice Harper ultimately sided with the former employee and held that a clause establishing a term of a contract is by nature not a termination clause and further, that even if a termination clause in a fixed term employment agreement is invalid, that does not alter the fact that the parties agreed to a fixed term. The concept of reasonable notice of termination at common law therefore has no application, and the default rule of being entitled to payment of the balance of the contract still applies.
In this case, the former employee presumably took the position she did because a payout of the remainder of her contract was higher than her reasonable notice entitlement would be. In this regard, whether this decision is helpful to employees or employers largely depends on how much term is left at the time a fixed term contract is terminated. In any event, we would recommend that employers and employees have fixed term contracts reviewed by counsel prior to entering them to ensure any issues are identified.
In the 2023 decision of Kopyl v. Losani Homes (1998), a former employee of Losani Homes (“LH”) brought an application to the Ontario Superior Court requesting an interpretation of a one-year fixed term employment agreement between themselves and LH. The two issues in front of Justice Harper were as follows: whether a clause setting out a fixed term of employment can be considered a termination clause; and ii) whether an unenforceable termination clause in a fixed term contract invalidates the fixed term. LH had conceded that the termination clause at issue was unenforceable.
If question two was answered in the affirmative, it would effectively convert the employment relationship from a fixed term into one of indefinite duration, where reasonable notice of termination at common law would be owed to the former employee. Notably, the former employee argued that the unenforceable termination clause did not invalidate the fixed term of the contract, and that under the general principles applicable to fixed term contracts, she should be paid out the balance of the agreement.
Justice Harper ultimately sided with the former employee and held that a clause establishing a term of a contract is by nature not a termination clause and further, that even if a termination clause in a fixed term employment agreement is invalid, that does not alter the fact that the parties agreed to a fixed term. The concept of reasonable notice of termination at common law therefore has no application, and the default rule of being entitled to payment of the balance of the contract still applies.
In this case, the former employee presumably took the position she did because a payout of the remainder of her contract was higher than her reasonable notice entitlement would be. In this regard, whether this decision is helpful to employees or employers largely depends on how much term is left at the time a fixed term contract is terminated. In any event, we would recommend that employers and employees have fixed term contracts reviewed by counsel prior to entering them to ensure any issues are identified.
For more information or employment law advice, contact a lawyer at Turnpenney Milne LLP.