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What Happens if My Employer Ends My Employment Contract Early?
Employment Law

What Happens if My Employer Ends My Employment Contract Early?

By June 19, 2021March 2nd, 2022No Comments

You are likely entitled to compensation and/or damages. How much depends on the type of contract. There are two types of employment contracts.

  1. Indefinite Term – This is the most common type. The length of the contract is indefinite; it will continue until either the employee or employer ends it. Most employment is this type.
  2. Fixed Term – This is a contract for a fixed amount of time, such as one year. The contract will often have a termination clause that sets out how much an employee is entitled to if the contract is terminated.

As with most things, Courts have the power to look beyond the contract and to the circumstances around them. An employee with multiple sequential fixed-term contracts can be deemed to be under an indefinite term contract.

Contract law holds that if either party terminates the contract, the other party can sue for the value of the contract, even if it is an employment contract. Thus, a poorly written contract can be an expensive headache for an employer.

How High can the Damages Be?

In the recent decision of McGuinty v. 1845035 Ontario Inc. (McGuinty Funeral Home), 2020 ONCA 816, the Court granted an unfairly dismissed employee 1.27 million dollars in damages. This was due to the high remaining value of the contract.

Mr. McGuinty worked in his family’s business for 30 years. Then, when he was 55, he sold the family business. He entered into a 10-year contract with the new owners to continue working as the General Manager until his retirement.

The relationship quickly deteriorated. The new owners undermined Mr. McGuinty’s authority. They humiliated him. They required Mr. McGuinty to complete timesheets as though he were a mere employee and not a person in a managerial position. They had his subordinate secretly track his hours in the office. While Mr. McGuinty took a two-week break, the owners then changed the locks, removed his picture from the wall of owners, and moved his office to the basement.

Mr. McGuinty sent an email to the owners advising them that he wanted to clear up a few things, such as the unpaid commissions, and that he was not resigning. Unfortunately, Mr. McGuinty was never able to return to work, and two years later, he issued a Statement of Claim alleging constructive dismissal after the owners ended his medical benefits.

Constructive Dismissal in Ontario Test

Constructive dismissal of an employee occurs when the employer breaches an essential term of the employment contract or executes a course of conduct that establishes the employer no longer intends to be bound by the employment contract. In essence, it is the counterpart to an employee being fired for cause.

The employee then has to decide if he or she is willing to accept the repudiation or resign. If the employee resigns, they have been constructively dismissed and has a right to damages.

Often times an employee will have until the next pay period to act. That is why it is critical to seek legal advice as soon as possible after a material change in the employment relationship occurs. Examples of material changes include:

– Pay Reduction
– Reduction in Hours
– Loss of employment benefits
– Change in Work Location
– Change in job duties
– Demotion
– Employer requests you do something illegal

It is important to remember that the terms of the employment contract are critical. An employee can contract out of certain types of constructive dismissal through their employment contract. However, that contract may or may not be valid. This is why you need to speak to an employment lawyer Hamilton before taking any action.

Each case has to be looked at on its own merits. However, Mr. McGuinty’s sick leave was a direct result of the owner’s conduct, and the delay in commencing this action for damages was not due to an acceptance of the situation. Mr. McGuinty, therefore, was entitled to $1.27 million in damages for the amounts he would have earned for the remaining nine years of the contract.

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