Fixed-Term Employment Contracts and the Enforceability of Termination Clauses
The Manitoba case Hebert v. Colin’s Mechanical Service Ltd., 2025 MBKB 87 considered the amount of pay in lieu of notice an employee is entitled to, per the termination clause of his employment agreement.
In 2021, George Hebert entered into a share purchase agreement with Colin’s Mechanical Service Ltd. for his electrical contracting business. Part of this share purchase agreement contained a condition that Mr. Hebert would enter into a four-year term employment contract, commencing on August 1, 2021, and ending on July 31, 2025. The termination clause stated that Colin’s Mechanical may terminate Mr. Herbert’s employment at any time during the four-year term without cause, subject to notice or payment in lieu of notice, or any combination thereof in accordance with the Manitoba Employment Standards Code (“Code”).
Mr. Hebert was given notice of termination on April 1, 2024, with his termination effective on May 1, 2024, 15 months before the contract was due to expire. Mr. Hebert obtained alternative employment on August 26, 2024, but chose to sue Colin’s Mechanical to recover the difference.
Mr. Hebert contended that his employment agreement with Colin’s Mechanical was a four-year fixed-term contract, and as such, is required to pay an amount that would have equaled Mr. Hebert’s wages and benefits to July 31, 2025. Mr. Hebert further submitted that the termination clause was unenforceable because it did not comply with the Code.
Conversely, Colin’s Mechanical submitted that the section of the termination clause at issue was properly interpreted and gave the right to terminate Mr. Hebert at any time during the term without cause, and has more than satisfied the requirements of the Code by paying Mr. Hebert four weeks’ notice, where the Code would normally only require two weeks in a case such as this.
The court determined that Colin’s Mechanical was found to be not liable to make any further payments to Mr. Hebert in lieu of notice. The court based this determination on the fact that the language and meaning of the termination clause was clear and unambiguous. Colin’s Mechanical had the right to terminate at any time during the four-year term and would provide the corresponding obligation to give notice and/or pay in lieu of notice pursuant to the Code.
Key Takeaways for Employers:
- Clarity of Language: The court ruled in favour of the Employer because the language of their termination clause was clear and explicit (i.e. terminate at any time during the four-year term). Here the language is clear and concise because it sets out an explicit period of time the employer is able to terminate without cause.
- Jurisdiction Matters: It is important for employers to take into consideration the preceding law in the jurisdiction they or their employee are in, before drafting agreements, as certain use of phrases may not be defined in the employment standards legislation.