



COURT OF APPEAL FOR ONTARIO

CITATION: Howard v. Benson Group Inc. (The Benson Group Inc.),
    2016 ONCA 256

DATE: 20160408

DOCKET: C60404

Cronk, Pepall and Miller JJ.A.

BETWEEN

John Howard

Plaintiff (Appellant)

and

Benson Group Inc., carrying on business as The Benson
    Group Inc.

Defendant (Respondent)

Kevin Sherkin and Ryan Wozniak, for the appellant

Albert Campea and Rachel Goldenberg, for the respondent

Heard: October 16, 2015

On appeal from the order of Justice Donald MacKenzie of
    the Superior Court of Justice, dated April 22, 2015, with reasons reported at
    2015 ONSC 2638.

Miller J.A.:

Overview

[1]

The appellant, John Howard, was employed at an automotive service centre
    in Bowmanville, Ontario as Truck Shop Manager and then as Sales Development
    Manager. His written employment contract was for a five-year term, commencing
    September 2012 (the Employment Contract). His employer, the respondent Benson
    Group Inc., terminated the appellants employment, without alleging cause, 23
    months later.

[2]

The appellant brought an action for breach of contract, seeking payment
    of his compensation for the unexpired portion of the contract: more than three
    years salary. His subsequent motion for summary judgment was granted by the
    motion judge, but he was not awarded the remedy that he sought. Instead of
    payment of salary to the end of the term of the contract, the appellant was
    awarded common law damages for wrongful dismissal. The quantum of damages,
    subject to mitigation, was to be assessed at a mini trial.

[3]

The primary question raised on appeal is whether an employee who is
    employed under a fixed term employment contract that does not provide for early
    termination without cause, is entitled to payment of the unexpired portion of
    the contract on early termination of the contract?

[4]

For the reasons that follow, I conclude that the motion judge erred in holding
    that the appellant is entitled to common law damages and that a duty to
    mitigate applies in the circumstances of this case. In my view, the appellant
    is entitled to a contractual sum for the termination of his employment in an
    amount equal to his salary and benefits for the unexpired term of the
    Employment Contract.

Background

[5]

The respondent terminated the appellants employment on July 28, 2014 
    23 months into the Employment Contract. The appellant was then 57 years old and
    earned a base salary of $60,000 per year, plus benefits.

[6]

The Employment Contract expressly provided for early termination. Clause
    1.3 set out the general framework: (t)he Employee and the Employer may
    terminate the Employees employment at any time in accordance with the terms
    and conditions of this Agreement. Various early termination scenarios were
    governed by Article 8. These included early termination by the employee (Clause
    8.2), and by the employer for cause (Clause 8.3). Most significantly for this
    appeal, the employers right to early termination without cause was governed by
    Clause 8.1:

Employment may be terminated at any time by the Employer and
    any amounts paid to the Employee shall be in accordance with the
Employment
    Standards Act of Ontario
.

[7]

The respondent took the position that it terminated the Employment
    Contract according to Clause 8.1, and that Clause 8.1 governed its liability to
    the appellant. The respondent argued that its liability was limited to two weeks
    salary in lieu of notice. The motion judge, however, found Clause 8.1 to be
    unenforceable due to ambiguity. Significantly, that finding is not appealed.

[8]

After excising Clause 8.1 due to vagueness, the motion judge examined
    the remaining provisions of the Employment Contract to determine whether it
    demonstrated an intention by the parties to displace the common law presumption
    of reasonable notice (or pay in lieu) in the event of termination without cause.
    He concluded that it did not. Accordingly, he rejected the appellants argument
    that he was entitled to contractual damages (or liquidated damages) for the
    unexpired term of the Employment Contract.

[9]

The motion judge ordered a mini-trial to address the question of what
    is the reasonable notice period attributable to the defendants termination of
    the plaintiffs employment according to common law, including any obligation
    on the appellant to mitigate his damages by seeking other employment.

Issues

[10]

The appellant raises two issues on appeal. Did the motions judge err in
    finding that:

(1) the respondent is liable for damages according to the
    common law of reasonable notice, rather than damages for termination of a fixed
    term contract? and

(2) an award of damages for early termination of the Employment
    Contract is subject to a duty to mitigate?

Issue 1: Common law reasonable notice or damages for
    termination of a fixed term contract?

[11]

The motion judge made two critical findings: (1) that the early termination
    clause is sufficiently ambiguous as to be unenforceable; and (2) that in the
    absence of an enforceable early termination clause, the respondents
    obligations are governed by an implied term under the common law requiring
    reasonable notice for the termination of the employment of the [appellant].
    Only the latter finding is appealed.

The Appellants Argument

[12]

The appellant argues that the motion judge erred in finding that he is
    entitled only to common law damages for reasonable notice, rather than contractual
    damages for the unexpired part of the contract. He submits that although Clause
    8.1 was found to be unenforceable, the remainder of the contractual provisions
    with respect to term and termination remained in effect, and the Employment
    Contract remained a fixed term contract.

[13]

As the right to early termination, per Clause 1.3, could only be exercised
    in accordance with the terms and conditions of this Agreement, the appellant
    argues that without Clause 8.1, the respondent had no contractual right to
    terminate the Employment Contract without cause. The only contractual rights the
    respondent had to terminate the Employment Contract were: (1) termination for
    cause under Clause 8.3, and (2) early termination without cause during a
    long-expired probationary period under Clause 1.

[14]

The appellant argues that the motion judge erred in concluding that a
    consequence of the failure of Clause 8.1 was that the Employment Contract did
    not evidence an intention to oust the common law presumption of reasonable
    notice. The appellant maintains that the Employment Contract remained a fixed
    term contract, and should be interpreted in the same manner as any fixed term
    employment contract without a provision allowing for early termination without
    cause.

The Respondents Argument

[15]

The respondent submits that the Employment Contract must be interpreted
    in accordance with the parties intentions, particularly the intention,
    manifest in Clause 1.3, that the Employment Contract could be terminated at
    any time.

[16]

If the Employment Contract expressly permits early termination, the
    respondent says, then the appellant, on early termination, cannot be entitled to
    compensation that he would have earned to the end of the Employment Contract. To
    hold otherwise, the respondent says, would mean that the appellants right to
    compensation would be the same regardless of whether the Employment Contract
    permitted early termination or not. Clause 1.3 permitting termination at any
    time would have no practical effect and the employer would derive no benefit
    from contracting for early termination. Accordingly, the respondent contends,
    the motion judge made no error in finding that the Employment Agreement did not
    displace the common law presumption of reasonable notice.

The Applicable Standard of Review

[17]

The applicable standard of review was not addressed by the parties. In
    my view, it is correctness. Generally, a motion judges interpretation of a
    contract will be entitled to deference and is reviewable for palpable and
    overriding error on the reasonableness standard. This is because contractual
    interpretation most often raises questions of mixed fact and law. However, where
    the decision below contains an extricable question of law, it is reviewable on
    the correctness standard. Extricable errors include: (1) the application of an
    incorrect legal principle; (2) the failure to consider a required element of a
    legal test; and (3) the failure to consider a relevant factor:
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at
    para. 53.

[18]

In
Sattva
, Rothstein J. warned that courts must be cautious in
    identifying questions of law in disputes over contractual interpretation, and
    ensure that the proposed ground of appeal has been properly characterized. The
    close relationship between the selection and application of principles of
    contractual interpretation and the construction ultimately given to the
    instrument means that the circumstances in which a question of law can be
    extracted from the interpretation process will be rare:
Sattva
, at paras.
    54-55.

[19]

The first question raised by the appellant is properly characterized as
    an extricable question of law. The question is whether an employer who: (1)
    terminates without cause (2) a fixed term employment contract that (3) does not
    include an enforceable provision for early termination without cause is (4) liable
    for damages according to the common law of reasonable notice, or for wages for
    the unexpired term of the contract? Accordingly, in light of this extricable
    question of law, the correctness standard of review applies.

Common law damages or wages for the unexpired
    term

[20]

There is a common law presumption that every employment contract includes
    an implied term that an employer must provide reasonable notice to an employee
    prior to the termination of employment. Absent an agreement to the contrary, an
    employee is entitled to common law damages as a result of the breach of that
    implied term:
Bowes v. Goss Power Products Ltd.
, 2012 ONCA 425, 351
    D.L.R. (4th) 219, at para. 23. This presumption can only be rebutted if the
    employment contract clearly specifies some other period of notice, whether
    expressly or impliedly:
Machtinger v. HOJ Industries Ltd.,
[1992] 1
    S.C.R. 986, at p. 998;
Ceccol v. Ontario Gymnastic Federation
(2001),
    55 O.R. (3d) 614 (C.A.), at para. 45. The question, then, is whether the motion
    judge erred in holding that the Employment Contract, without Clause 8.1, failed
    to rebut that presumption by clearly specifying some other period of notice,
    expressly or impliedly.

[21]

In my view, the motion judge erred in so holding. Where an employment
    agreement states unambiguously that the employment is for a fixed term, the
    employment relationship automatically terminates at the end of the term without
    any obligation on the employer to provide notice or payment in lieu of notice.
    Such a provision, if stated unambiguously, will oust the implied term that
    reasonable notice must be given for termination without cause:
Lovely v.
    Prestige Travel Ltd.
, 2013 ABQB 467, 568 A.R. 215, at para. 135;
Ceccol
,
    at para. 25.

[22]

Of course, parties to a fixed term employment contract can specifically
    provide for early termination and, as in
Bowes
, specify a fixed term
    of notice or payment in lieu. However, and on this point the appellant and the
    respondent agree, if the parties to a fixed term employment contract do not
    specify a pre-determined notice period, an employee is entitled on early
    termination to the wages the employee would have received to the end of the
    term:
Lovely
, at para. 136;
Bowes
,

at para. 26;
Canadian
    Ice Machine Co. v. Sinclair
, [1955] S.C.R. 777, at p. 786.

[23]

The respondent argues, however, that because the Employment Contract
    does not (in the absence of Clause 8.1) contain a provision that expressly specifies
    a notice period for early termination without cause, the common law presumption
    of reasonable notice must govern. To conclude otherwise, the respondent argues,
    would be to ignore the effect of Clause 1.3, expressly authorizing the early
    termination of the Employment Agreement. What would be the point of authorizing
    early termination, the respondent asks, if the consequences of early
    termination would be the same regardless of whether the contract permitted
    early termination?

[24]

I reject the respondents interpretation of the Employment Contract. Clause
    1.3 does not establish an undifferentiated right to early termination with or
    without cause. By providing that (t)he Employee and the Employer may terminate
    the Employees employment at any time in accordance with the terms and
    conditions of this Agreement, the clause merely creates a framework for termination
    in accordance with the terms and conditions of the Employment Contract. With
    the removal of Clause 8.1, the only rights of termination which remained were those
    established by Clauses 8.2 and 8.3.

[25]

Accordingly, the excision of Clause 8.1 had no effect on the fixed term
    nature of the Employment Contract. As noted above, the respondent does not
    contest that had the Employment Contract run its course, the respondent would
    have had no obligation to provide notice to the appellant or payment in lieu of
    notice upon termination.

[26]

The Employment Contract, without Clause 8.1, unambiguously remains a
    fixed term contract. Without Clause 8.1, it contains no provision for early
    termination without cause. In keeping with
Machtinger
and
Ceccol
,
    the Employment Contract is sufficiently clear to oust the common law
    presumption of reasonable notice on termination. It follows that the appellant is
    entitled to the compensation that he would have earned to the end of the Employment
    Contract.

[27]

The respondent objects that such an outcome produces a windfall for the
    appellant and is unfair. I disagree for the following reasons.

[28]

The motion judge found that the respondent drafted the Employment
    Agreement. The respondent is not an unsophisticated party. Its position before
    the motion judge was that the Employment Agreement required the appellant to forego
    the implied term of reasonable notice of termination for (on the respondents interpretation
    of the unenforceable Clause 8.1) pay in lieu of two weeks notice.

[29]

The respondent sought to use a fixed term contract either to eliminate
    its severance obligation entirely or to limit it to two weeks notice on an
    early termination. It was, of course, free to do this. But the courts have
    consistently held that the consequences to an employee of such a bargain are so
    significant that the employer must communicate clearly in the contract that
    this is what it is intending to do:
Ceccol
, at para. 27. If an
    employer does not use unequivocal, clear language and instead drafts an ambiguous
    or vague termination clause that is later found to be unenforceable, it cannot
    complain when it is held to the remaining terms of the contract.

[30]

I conclude that the motion judge erred in not finding that the
    Employment Contract, without Clause 8.1, clearly established a notice period equal
    to the unexpired portion of the fixed term contract. The motion judge further erred
    in not finding that this notice period ousted the common law presumption of
    reasonable notice.

Issue 2: Was the appellant under an obligation to mitigate his
    damages arising from the termination of the fixed term contract?

The Applicable Standard of Review

[31]

The motion judge held that there was a duty to mitigate, and directed a
    mini-trial on both quantification of reasonable notice and mitigation. The
    motion judge, of course, made no error in holding that damages in lieu of
    reasonable notice are subject to mitigation. However, having found that the
    appellant is entitled to compensation on another basis, it is necessary for
    this court to make a fresh determination about whether he is bound by a duty to
    mitigate.

The Duty to Mitigate

[32]

The leading case from this court on the duty to mitigate in the context
    of an employment contract is
Bowes
. The question in
Bowes
was
    whether an employment agreement that fixes the period of notice, but makes no
    specific reference to mitigation, attracts the obligation to mitigate in the
    event of breach in the same way as the obligation to mitigate attaches to the
    common law duty to provide reasonable notice or pay in lieu.

[33]

Bowes
held that a contractually fixed term of notice is
    distinguishable from common law reasonable notice. At para. 34, the
Bowes
court stated: [a]n employment agreement that stipulates a fixed term of notice
    or payment in lieu should be treated as fixing liquidated damages or a
    contractual amount. It follows that, in such cases, there is no obligation on
    the employee to mitigate his or her damages. Thus, the duty to mitigate does
    not apply to liquidated damages or contractual amounts:
Bowes
, at
    para. 41.

[34]

The rationale for this conclusion is that: (1) it would be unfair to
    permit an employer to opt for certainty by specifying a fixed amount of damages
    for termination, and then permit it to reduce that amount by compelling the
    employee to mitigate his or her damages when mitigation was not addressed in
    the employment agreement; and (2) it would be inconsistent for parties to
    contract for certainty, and yet leave mitigation as a live issue with its
    uncertainty and risk of future litigation:
Bowes
, at para. 61.

[35]

The employment agreement in
Bowes
differed from the Employment
    Contract in this case in two respects: (1) it was not a fixed term contract;
    and (2), more significantly, it contained an express clause stipulating a fixed
    quantum of damages for early termination of the contract.

[36]

The appellant argues that the
Bowes
principle ought to be
    extended to fixed term contracts that, in effect, do not contain a provision
    for early termination without cause. He argues that the same interests of
    fairness and certainty apply. He relies on Wakeling J.s commentary on
Bowes
in
Lovely
, at para. 140:

Certainty is just as much a feature of a fixed-term contract
    with no early termination provision as a contract term requiring an employer to
    pay an employee a stipulated sum if it wishes to invoke an early termination provision
    in a fixed-term contract or a termination provision in an indefinite-duration
    agreement. An employer who ends the employment relationship in a fixed-term contract
    before its term expires must pay the employee the value of the salary and
    benefits the employee would have received had he or she worked throughout the
    remaining term of the contract. If the parties wish to modify that obligation
    they should unambiguously say so.

[37]

The respondents objection to this reasoning is that, far from the
    circumstances of
Bowes
, the parties here had not bargained for
    certainty. The motion judge found that there was no evidence as to what the
    parties agreed should happen if Clause 8.1 was found to be unenforceable. It
    would be odd, on the respondents view, to characterize the result in this case
    as the consequence of parties bargaining for certainty as the absence of a specified
    termination payment was accidental.

[38]

I would reject this argument. In my view, the parties did bargain for
    certainty when they entered a fixed term contract.

[39]

There is no reason to depart from the rule in
Bowes
that there
    is no duty to mitigate where the contract specifies the penalty for early
    termination. It does not matter whether the penalty is specified expressly, as
    in
Bowes
, or is by default the wages and benefits for the unexpired
    term of the contract, as in the case of fixed term contracts generally.

[40]

The respondent resists this conclusion, relying on
Loyst

v.
    Chattens Better Hearing Service
,

2012 ONSC 1653, 98 C.C.E.L.
    (3d) 243, affd 2013 ONCA 781, 14 C.C.E.L. (4
th
) 151, and
Graham
    v. Marleau, Lemire Securities Inc
. (2000), 49 C.C.E.L. (2d) 289 (Ont.
    S.C.). In my opinion, neither of these cases help the respondent.

[41]

In
Loyst
, the question was whether a refusal by an employee to
    accept unilaterally imposed changes to her employment contract constituted a
    failure to mitigate. The trial judge found that the employer had terminated the
    employment, and had not satisfied its onus of proving that the employees
    mitigation efforts were inadequate. On appeal, this court held, in a brief
    endorsement, that based on the trial judges finding that the employment had
    been terminated, the employer could not argue that the employee had failed to
    mitigate by not remaining with the employer. The termination of employment precluded
    the option of remaining with the employer.

[42]

The trial decision in
Loyst
is easily explained on the basis
    that it predates
Bowes
. On appeal to this court in
Loyst
, neither
Bowes
nor the question of whether the duty to mitigate applied, were
    put in issue. On that basis,
Loyst
is of no assistance to the
    respondent.

[43]

In
Graham
, Nordheimer J. exhaustively canvassed the case law on
    the question of whether a contractual sum payable on termination of employment
    is subject to the duty to mitigate. After observing that there were competing
    lines of authority, he concluded at para. 50 that the duty to mitigate applied
    to both fixed term contracts and contracts of indefinite duration.
Graham
,
    however, has been overtaken on this point by
Bowes
. At paras. 34-37,
    the
Bowes
court wrote:

An employment agreement that stipulates a fixed term of notice
    or payment
in lieu
should be treated as fixing liquidated damages or a
    contractual amount. It follows that, in such cases, there is no obligation on
    the employee to mitigate his or her damages.

To reiterate, the premise of
Graham
, set out at para.
    53, was as follows:

[A contractually fixed term of
    notice]
is nothing more than an agreement between the parties as to the
    length of the reasonable notice
to terminate the contract. I see no reason
    why there should be any distinction drawn between contracts of employment where
    the notice period is not stipulated and those where it is with the result that there
    would be a duty to mitigate in the former but not in the latter. [Emphasis
    added.]

In my view, Nordheimer J. in
Graham
, and the
    application judge in this case, erred by treating a contractually fixed term of
    notice as effectively indistinguishable from common law reasonable notice.

When parties contract for a specified period of notice or pay
in
    lieu
they are choosing to opt out of the common law approach applied in
Bardal.
In doing so, the parties should not be taken as simply attempting to
    replicate common law reasonable notice. The Alberta Court of Appeal explained
    as follows in
Brown v. Pronghorn Controls Ltd.
, 2011 ABCA 328 (CanLII),
    515 A.R. 128, at para. 47:

If the contract entitles the employee
    to payment of money, howsoever calculated, on termination, that right to that
    money is contractual. As such, the parties were not bound to specify an
    entitlement that is equal or even analogous to the quantum of reasonable notice
    that the common law might require if the contract was silent.

Damages for contractually stipulated
    notice or pay
in lieu
should not be analogized directly to damages for
    common law reasonable notice. The parties have specifically contracted for
    something different; it is an error to simply equate the two.

[44]

In the absence of an enforceable contractual provision stipulating a
    fixed term of notice, or any other provision to the contrary, a fixed term
    employment contract obligates an employer to pay an employee to the end of the
    term, and that obligation will not be subject to mitigation. Just as parties
    who contract for a specified period of notice (or pay in lieu) are contracting
    out of the common law approach in
Bardal v. Globe & Mail Ltd.
(1960),
    24 D.L.R. (3d) 140 (Ont. H.C.), so, too, are parties who contract for a fixed
    term without providing in an enforceable manner for any other specified period
    of notice (or pay in lieu).

Disposition

[45]

For the reasons given, I would allow the appeal. A declaration shall
    issue that the appellant is entitled to a contractual sum for the termination
    of his employment in an amount equal to his salary and benefits for the
    unexpired term of the Employment Contract. I would remit the matter to the
    motion judge for a determination of the quantum of that sum, unless the parties
    are able to agree. Finally, I would award costs to the appellant in the amount
    of $9,000, inclusive of disbursements and HST.

Released: BWM  APR 8, 2016

B.W. Miller J.A.

I agree. E.A. Cronk
    J.A.

I agree. S.E. Pepall
    J.A.


