The High Cost of Early termination of Fixed-Term Employment Contracts
Lessons from McGuinty v. 1845035 Ontario Inc. (McGuinty Funeral Home), 2019 ONSC 4108
Fixed-term employment can look simple—set the length, set the pay, sign the deal. But if a fixed-term contract ends early and there’s no clear, enforceable termination clause, the employer may be on the hook for the entire balance of the term, often with no duty on the employee to mitigate. The Ontario case McGuinty v. 1845035 Ontario Inc. is a cautionary tale for employers and a roadmap for employees.
Case Snapshot
Employer: McGuinty Funeral Home (1845035 Ontario Inc.)
Employee: Mr. McGuinty, long-time operator of a family funeral home business later sold to the defendant
Contract: 10-year fixed term (2012–2022), $100,000/year plus commissions, benefits, and a company vehicle
Breakdown: Relationship deteriorated within months; by September 2013 Mr. McGuinty was on medical leave for workplace stress
Claim Issued: September 2015
What Went Wrong
The employer’s conduct included: removing access to the company vehicle, changing locks, and withholding commissions. The trial judge found this amounted to constructive dismissal.
Crucially, the contract did not contain a cancellation/termination provision. As a result, the court awarded damages equivalent to the unexpired portion of the 10-year term, including commissions, benefits and expenses—$1,274,173.83—and held that the award was not subject to mitigation.
The Appeal: Condonation Rejected
On appeal, the company argued that Mr. McGuinty had condoned the changes. The Court of Appeal reiterated the two routes to constructive dismissal:
A unilateral change to an essential term, or
A course of conduct showing the employer no longer intends to be bound by the contract.
Even if the vehicle issue alone didn’t end the relationship, the overall pattern of conduct did. The court also rejected the condonation argument, noting that an employee’s unique circumstances matter. Here, factors such as age, career history in the family business, and a non-competition clause supported the conclusion that his timing in suing was reasonable, not condonation.
Why Fixed-Term Contracts Are Risky for Employers
No termination clause = full balance risk. Without a valid early-termination provision, ending the relationship can mean paying out the entire remaining term.
Mitigation may not apply. Courts have held that, in many fixed-term scenarios without proper clauses, employees don’t have to look for other work to reduce damages.
Constructive dismissal triggers full exposure. A sustained pattern of adverse actions (e.g., cutting tools/benefits, excluding access, withholding pay) can prove the employer repudiated the contract.
“Condonation” is a narrow shield. Simply remaining off work or trying to sort things out does not automatically mean the employee accepted the new terms.
Practical Steps for Employers
Use clear, enforceable termination language. Spell out how and on what terms a fixed-term contract can end early.
Build in mitigation where permissible. Consider clauses addressing mitigation and set-offs—drafted to comply with current law.
Manage changes carefully. Avoid unilateral changes to essential terms (pay, duties, benefits, status, key tools like vehicles/access).
Document and communicate. If changes are necessary, obtain informed, written consent and provide consideration where required.
Train leaders. Ensure managers understand that patterns of conduct can amount to repudiation.
Get legal advice early. Before suspending access, withholding commissions, or changing locks—call your counsel.
Guidance for Employees
Keep detailed records. Dates, conversations, changes to pay/benefits/access, and medical notes if applicable.
Don’t assume you must mitigate. In fixed-term cases without proper clauses, damages may reflect the remaining term.
Act promptly, but thoughtfully. Seek legal advice to preserve rights while considering health, non-competes, and career realities.
How Vanguard Law Can Help
Whether you’re drafting fixed-term agreements or dealing with a potential constructive dismissal, our employment lawyers can help you assess risk, redesign contracts, and navigate disputes strategically.
Contact us to speak with our team.