The fundamental importance of solid contracts as a foundation for success in human resources management was reaffirmed in 2023. As we’ve written, blogged and presented on repeatedly over the years, employment contracts are critical to an employer’s ability to flexibly manage employees and limit liability where the employment relationship isn’t working out for one reason or another. Be sure to check out our recent PooranLaw on Demand webinar to learn more about how to benefit from solid contact drafting. Below, we review a recent case that highlights the risks of poorly drafted fixed term contracts.
As we’ve discussed in our previous blogs and webinars, the case law is clear that if a fixed term contract is terminated without an enforceable termination clause, an employee may be entitled to all compensation they would have earned over the course of the balance of the term, and will have no duty to mitigate their losses by looking for employment elsewhere. That means an employee can immediately get another job and receive effectively double salary. A recent case demonstrates that this is also a risk for independent contractor agreements.
In Elder v. Max Real Estate, the plaintiff worked as a real estate agent in association with Sotheby’s Realty. After successfully completing his 1-year fixed term contract, the employer decided to extend Mr. Elder’s contract for an additional year. One month into the extension, with 11 months remaining before the contract would come to term, Sotheby’s terminated Mr. Elder’s contract.
Mr. Elder’s contract with Sotheby’s contained a termination clause which allowed either party to terminate the contract “at any time with written notice to the other party.” As such, Sotheby’s argued that they were entitled to terminate the contract without providing any advanced warning. However, the court held otherwise; the court ruled that the termination clause, in operation, meant that Sotheby’s was required to provide advanced notice, and under these circumstances, the notice period for termination would be the length of time remaining under the contract.
Just one week after his termination, Mr. Elder found work at a different real estate agency. While he did indeed mitigate his damages, this new position offered a smaller compensation package relative to what he was earning at Sotheby’s. Accordingly, the court decided that the plaintiff was entitled to damages equal to what he would have earned during the remaining time under the Sotheby’s contract, but that such damages ought to be reduced by the amount he would earn with the new agency during the same period of time. Ultimately, the court awarded Mr. Elder with $21,000 in damages, and an additional $25,000 in costs to cover his legal fees.
Takeaway
This case highlights the need to exercise caution when drafting and terminating fixed-term contracts – whether its for contractors or employees. The courts almost uniformly favour the more “vulnerable” party – meaning the employee or the contractor – and seem to rejoice in awarding the balance of the term as damages. Overall if you are using a fixed term contract it’s a good idea to get legal advice.
PooranLaw will continue to monitor the ongoing legal developments related to cases like these. If you require legal assistance, we encourage you to reach out to your regular PooranLaw lawyer, or any member of our team.
Note: This article provides general information only and does not constitute, and should not be relied upon as, legal advice or opinion. PooranLaw Professional Corporation holds the copyright to this article and its contents may not be copied or reproduced in any form, in whole or in part, without the express permission of PooranLaw Professional Corporation.
