The employee in that case was hired as a senior executive for a two-year term and his contract was subsequently renewed for an additional year. His second fixed-term contract included a clause requiring that he receive a 12-month severance payment in the event of early termination. A month before his contract was due to end the employee was informed that it would be not renewed. The employee was also informed that he would not need to come back to work for his final month. Instead, he was told to make arrangements to pick up his personal effects from the office and that the President and CEO would be taking over his duties.

The employee sued, alleging he was terminated before the end of his contract without cause. At trial, he was awarded 12 months' severance as was required by his contract of employment.

In upholding the Trial Court's decision, the Alberta Court of Appeal held that the employer's conduct amounted to constructive dismissal. The Court noted that the employee was not simply informed that his contract would not be renewed; rather, he was also informed that he no longer needed to attend work and that his duties would be taken over by someone else. The Court concluded that a person in the position of the employee acting reasonably would have considered themselves to have been constructively dismissed. The Court held that a contract of employment, whether for a fixed or indefinite term, is a mutual contract. As such, the Court held that a unilateral change to the contract must be consented to by both parties. In this case. The employee did not consent to the unilateral change in his employment circumstances. The Court also upheld the award of 12 months' severance, finding that that, while the ordinary practice for the early termination of a fixed-term employment contract is to pay out the contract if it had run to its end, in this case the parties had contracted a specific payment for early termination. The Court therefore applied the contract's termination provisions.

As this decision found, where fixed term contracts are in place, early termination can nevertheless result in constructive dismissal. Where termination provisions are in place they may be triggered by such decisions. Clear wording in the agreement would be beneficial to avoid inadvertent triggering of termination notice that well exceeds the expiry of a fixed term contract. As well, planning the manner and timing of termination is necessary where fixed term agreements are involved to avoid unexpected outcomes as occurred in this case.

Note: This a reprint of an article by Michael Torrance of Rose Fulbright Canada LLP.