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Fixed Term Employment Contracts: Court of Appeal Decision Addresses the Interpretation of Termination Clauses, Acting in Good Faith, and the Measure of Damages

Mohamed v. Information Systems Architects Inc. 2017 Ont SCJ

Newsletter Feb 2018 “Bad Drafting”

Dependent/independent contractor (whom we will refer to as an employee) fired when employer’s client, as was its right, requested that employee not work at its project for security reasons. Before employer had retained employee, employee had informed employer that he had been convicted of assault with a weapon 17 years ago when in high school. Employer relied on the termination clause in the employment agreement. Judge held that the termination provisions were vague or uncertain and struck the provisions. They were vague because one part of termination provisions allowed the employer to terminate for breach of the agreement and another part allowed the employer to terminate if it were in the employer’s best interests. The employer wanted that clause to be interpreted as if employer had ultimate discretion to do anything it wanted. The judge noted that, if this were the case, there would be no need for the clause allowing termination upon breach of the agreement. In essence, the judge held that the clause was vague and inconsistent because the termination clause was “illogical and inconsistent.” The judge also held that there was no need to mitigate because the employer had terminated a fixed term contract. The judge held that there was no difference between an employment contract and independent contractor contract with regard to mitigation.

Mohamed v. Information Systems Architects Inc. 2018 Ont CA

The Court of Appeal agreed with the employer that, once the motions judge determined that the clause on which the employer relied was clear on its face, he could not then say that, because of other contractual provisions and the contra proferentum rule, that the clause was vague or uncertain. However, the Court read the judge’s decision as one that relied solely on the organising principle of good faith in the performance of contracts applied to an already existing principle (i.e. there had to be an element of good faith or trust in the exercise of discretion). The Court agreed that the employer breached its obligation to perform in good faith by terminating the employment contract without trying to secure the client’s agreement to allow the employee to continue on the project and by not offering him any other consulting project. The Court held that mitigation was not necessary after the breach of a fixed term employment contract and that, in this case, it did not matter whether the employee was a true employee or a dependent or independent contractor. He had given up his permanent full-time job to accept the fixed term contract and it was therefore reasonable to infer that the parties intended that, if the employer did not terminate that contract in good faith, then damages would be based on the wages for the remaining term.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.