Manitoba Court upholds early termination clause in term contract

The Manitoba Court of King’s Bench upheld a “without cause” termination clause in the recent case of Hebert v Colin’s Mechanical Service Ltd., 2025 MBKB 87, which considered a without cause termination prior to the expiry of a term contract. This is a welcome decision for employers.

Background

This case involved a dispute between Mr. Hebert and Colin’s Mechanical Service Ltd. (“Colin Mechanical”) following Mr. Hebert’s sale of his business, Lineside Electric Ltd. (“Lineside”), to Colin Mechanical. As part of the sale, Mr. Hebert entered into a four-year fixed term employment agreement with Colin Mechanical.

The contract included several termination provisions, including a clause allowing Colin Mechanical to terminate the agreement without cause at any time, “subject to notice or payment in lieu of notice… in accordance with The Employment Standards Code of Manitoba” (the “Code”).

Approximately 15 months before the end of the fixed term, Mr. Hebert’s employment was terminated without cause. At that time, he had just over two years of service with Colin Mechanical. Colin Mechanical took the position that he was entitled to only two weeks’ notice under the Code (although Colin Mechanical provided a total of four weeks’ notice as a gratuitous gesture). Mr. Hebert sued for wrongful dismissal, claiming the termination provision was unenforceable and he was owed compensation for the remainder of the fixed term.

Mr. Hebert’s arguments & the Court’s response

Mr. Hebert advanced three primary arguments against the enforceability of the termination provisions, all of which were rejected by the Court.

1. Ambiguity in the “without cause” termination provision

Mr. Hebert’s first argument was that the “without cause” termination provision was ambiguous and any such ambiguity should be construed in his favour under the contra proferentem doctrine, which provides that, due to the power imbalance inherent in employment relationships, any ambiguity in a contract provision should be interpreted against the party who drafted the clause.

The Court, however, firmly rejected this argument. Relying on the interpretive principles set out by the Supreme Court of Canada in Sattva Capital Corp. v Crestron Moly Corp., 2014 SCC 53 (“Sattva”), the judge found that the “without cause” termination provision was clear and unambiguous in its ordinary and grammatical meaning. The clause expressly limited the employer’s obligation upon a without cause termination to the statutory minimums under the Code and was not ambiguous, thereby rebutting the presumption of common law reasonable notice.

As such, the Court held that there was no basis to invoke contra proferentem, reinforcing the principle that the doctrine only applies where genuine uncertainty remains after applying the usual tools of contractual interpretation.

2. Unreasonableness of the “without cause” termination provision

Mr. Hebert also argued that Colin Mechanical’s interpretation of the “without cause” termination provision should be rejected as it would produce an unreasonable result – namely, that he could be dismissed on just two weeks’ notice even on his first day of a fixed four-year term.

The Court dismissed this argument, holding that there is nothing inherently unreasonable about two parties – particularly where both were represented by legal counsel – agreeing to a fixed-term contract that expressly incorporates only the statutory minimum notice requirements from the outset of the employment relationship.

3. The “with cause” termination provision is illegal and therefore invalidates all termination provisions

Lastly, Mr. Hebert argued that the “with cause” termination clause in the employment agreement was unenforceable because it set out a broader standard for dismissal than that required under the Code.

Section 62(1)(h) of the Code exempts employers from notice obligations when termination is for “just cause” without further definition of the term (unlike, for example, the Employment Standards Act of Ontario).

The termination clause in question permitted Colin Mechanical to dismiss Mr. Hebert without notice or pay in lieu where Mr. Hebert engaged in specified forms of misconduct, including theft, dishonesty, intoxication, absenteeism, insubordination or material breach of the agreement. Importantly, it also included a catch-all reference to “just cause as construed at common law.”

Mr. Hebert further asserted that, pursuant to a recent line of cases out of the Ontario Court of Appeal, the invalidity of the “with cause” termination provision should also render the “without cause” provision unenforceable.

The Court held that the clause did not contravene the Code. While Mr. Hebert contended that even minor infractions could theoretically constitute “cause” under the agreement, the Court emphasized that under a practical, commonsense interpretation consistent with the principles in Sattva, whether an act constituted “cause” would necessarily depend on the seriousness of the misconduct in its full context – precisely the same analysis required under the Code for a just cause termination.

Having found the “with cause” provision enforceable, the Court declined to consider whether invalidity would have tainted the “without cause” termination provision. Accordingly, the Ontario Court of Appeal decisions were not considered further.

Continuous employment argument

Mr. Hebert further asserted that he was entitled to eight weeks’ statutory notice under the Code, relying on section 5 of the Code which provides for continuity of employment where a business is sold and the employee’s employment continues after the sale. He argued that his service with Lineside – which began in 2006 – should have been included in calculating his notice entitlement.

The Court acknowledged the potential application of section 5 but declined to rule in Mr. Hebert’s favour. The decisive factor was in the share purchase agreement, which expressly required Lineside to terminate all existing employees as of July 31, 2021, and to satisfy all termination entitlements owing to them as of that date. On this basis, Mr. Hebert’s employment with Lineside was contractually agreed to be terminated prior to the commencement of his employment with Colin Mechanical.

The Court reasoned that if Mr. Hebert had already received his statutory entitlements from Lineside, he would not be entitled to assert continuity under section 5 of the Code as this would amount to double recovery. If he had not been paid by Lineside, then a potential remedy may lie against Lineside or Colin Mechanical. As there was no evidence before the Court as to whether Mr. Hebert had received eight weeks’ notice of termination or pay in lieu from Lineside, the Court concluded it was not in a position to make a finding on the issue.

Key takeaways for employers

In light of other decisions considering early termination provisions, particularly from Ontario, this decision is a welcome result for employers. However, the case law continues to be challenging for employers seeking enforceable termination provisions and courts continue to carefully scrutinize termination provisions.

Accordingly, employers must take care when preparing employment agreements and should regularly review their forms of agreement in light of applicable case law and legislation.

As well, employers involved in a sale and purchase of a business should also take note that it may be possible to limit common law entitlements at termination by indicating whether the vendor has satisfied all termination entitlements as at the transaction date. However, we caution that the deemed continuous employment provisions of the Code may still impact an employee’s Code entitlements.

The MLT Aikins labour & employment team has the experience and expertise to help you draft effective, enforceable employment agreements that minimize risk and protect your organization’s interests. Contact us for more information.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

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