Why fixed-term contracts can result in big windfalls for employees

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Pound the pavement. Work your network. Record your job search.

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Most workers receive some version of this advice when seeking some solace or counsel following a termination. After all, it is trite law that employees are expected to mitigate their damages if they find themselves suddenly unemployed.

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But in some cases, terminated employees are not required to mitigate their damages at all. If fired from a fixed-term contract, sometimes employees are entitled to the balance of their contract, no matter how large.

Take the case of Mark Andrew Tarras, a professional engineer who was employed as a vice president at The Municipal Infrastructure Group Limited. He accepted the role in 2019 and signed an employment agreement with a three-year term that would have expired in December 2022. When he signed the agreement, Tarras had legal counsel who negotiated the terms of the employment agreement before he signed it.

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Roughly a year into the term, Tarras was terminated effective Dec. 31, 2020. At the time, he earned a base salary of $250,000, incentive compensation and other fringe benefits.

Following his termination, Tarras sued TMIG, challenging the very contract he signed just a year earlier.

At a summary judgment motion, the court reviewed Tarras’ employment agreement which, notably, contained a termination provision that contemplated an early termination of the fixed-term contract. The court, however, found the termination provision to be unenforceable as it ran afoul of Tarras’ rights under the Employment Standards Act.

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When no termination provision governs a fixed-term contract, on termination, employees are entitled to the balance of their pay for the term. That is exactly what Tarras was awarded. In all, Tarras was awarded a little over 23 months of pay, including salary, vacation pay, the proceeds from the incentive compensation plan, and all other employee benefits.

Given his high salary, this award totalled somewhere in the neighbourhood of half a million dollars (or more).

Tarras was entitled to this payout, despite having legal counsel and being a sophisticated, well-educated and well-resourced employee.

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The court also noted that Tarras had not reemployed by the time his motion was heard and considered that his age, and a non-competition clause in his agreement may be contributing factors. Overall, these factors did not appear to impact the decision as the court noted “there is no duty to mitigate on the part of an employee terminated from a fixed-term contract.”

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This case is particularly helpful for employees in the tech sector and those impacted by mass layoffs in recent months. Newly-terminated employees are embarking on new working opportunities that may include project-based, short-term contracts, consulting agreements, gig, or influencer work. If the work you are doing is term based, this case may offer some additional protections in the event you are terminated part way into a project or contract.

Employers that are moving toward consulting arrangements, rather than traditional employment agreements, should take heed and consider the cost/benefit analysis of fixed-term work. When considering a fixed-term contract, clear (and legal) termination provisions will carry the day. Anything less may be much more costly.

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The content of this article is general information only and is not legal advice.