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Fixed term contracts can leave employers 6 feet under

Fixed term contracts can be an expensive and dangerous thing for employers.
 
After successfully running the family funeral home with his brother for many years Powell decided he had to sell when his brother became ill and could not work anymore. He was paid almost 2 million for the sale of the business. One of the conditions of the purchase was that he was to stay on as the General Manager for a 10 year period and agree  not to compete for another 10 years after that.

There was no clause, as there should have been, saying that Powell could be terminated for just cause. There was no clause allowing for an earlier termination with a prescribed notice period.  It was 10 years of guaranteed employment. Such arrangements are not unusual in the sale of a business and I have seen them repeatedly.  While there usually would be a clause allowing for termination for cause, a guaranteed period of employment is often considered part of the purchase price by the vendor. In addition, the purchaser often needs help familiarizing themselves with the business and helping with the transition.

The purchaser got a guarantee that Powell would not compete within 20 years of the date of the purchase even if Powell had quit.

While non-competition provisions will rarely be enforceable for employees, when you sell a business and you sign an agreement not to compete, it will very likely be enforced.

Within a year, Powell took the position that he had been constructively dismissed from his employment as a result of actions taken by the new owner.

The contract called for use of a company vehicle and gas card.  The employer objected to Powell using the car benefit for personal use and when no agreement could be reached took them away. It argued before a judge that the company vehicle and gas card were only supposed to be for corporate use.  But the judge decided that if that were the case it would not have needed to be included in the contract. Obviously no employee is going to be driving around in their own vehicle at their own cost to carry out the employer’s business. It was added to the contract because it allowed something more than corporate use.

The employer became upset with how much time Powell was spending away from the office and asked one of Powell’s subordinates to track his time which was humiliating to Powell as General Manager.  The employer did not pay the commissions that Powell was entitled to under the employment agreement on prepaid funeral services, without proper justification. 

When Powell went off sick his picture was removed from the lobby in the funeral home and the locks to the funeral home were changed without anyone telling Powell. 

The judge found that taken cumulatively these actions displayed an intention by the new owner not to be bound by the contract terms and therefore a termination.

With fixed term contracts, unlike a regular wrongful dismissal suit, the plaintive has no obligation to try to mitigate his damages by finding new employment and any monies they do earn from a new job are not deducted.

Powell was awarded almost 9 years lost wages at $100,000.00 a year as well as the lost car benefit and the commissions he would have likely earned. The total was 1.3 million dollars.

If the purchaser had ensured that the exact terms of the relationship and expectations had been laid out all of this may have been avoided.  As it was, Powell did very well with the sale of his business. 


 
Ed Canning
Ed Canning
P: 905.572.5809
ecanning@rossmcbride.com