Executive Summary: Key Legal and Evidentiary Issues

• Dispute arose over interpretation of a termination clause in a fixed-term employment agreement.

• Plaintiff claimed entitlement to wages and benefits for the unexpired term following termination without cause.

• Clause 5.2 was found to clearly limit notice or pay in lieu to the minimum standards set by Manitoba’s Employment Standards Code.

• Court held that the clause was unambiguous and enforceable, negating any entitlement to full-term compensation.

• Argument based on prior service continuity under the Code was dismissed due to lack of evidence.

• Challenge to the termination clause based on alleged invalidity of the “with cause” provision under Clause 5.1 was rejected.

Facts and background

In July 2021, Gerald Hebert and his wife sold their business, Lineside Electric Ltd., to Colin’s Mechanical Service Ltd. under a share purchase agreement dated July 1, 2021. The agreed purchase price was $450,000, of which $250,000 was to be paid in four equal, annual instalments starting one year after the closing date. This obligation was formalized through a promissory note from Colin’s Mechanical in favor of Mr. Hebert and his wife.

A condition of the sale, as set out in paragraph 7.1(i) of the share purchase agreement, required Mr. Hebert to enter into a four-year employment agreement with Colin’s Mechanical. That employment agreement, signed on July 1, 2021, covered the period from August 1, 2021, to July 31, 2025.

On April 1, 2024, Mr. Hebert was notified that his employment would be terminated effective May 1, 2024—15 months before the agreement’s scheduled end. He found alternate employment starting August 26, 2024, at a lower salary, and sued Colin’s Mechanical to recover $44,928.62, representing the difference in income for the remaining contract term.

Policy terms and the clause at issue

Clause 5.2 of the employment agreement governed termination without cause by Colin’s Mechanical. It allowed the employer to terminate Mr. Hebert's employment at any time during the contract term “subject to notice or payment in lieu of notice or some combination of notice and pay in lieu, in accordance with the Employment Standards Code of Manitoba.” The clause also stated that such termination would not prejudice Mr. Hebert’s right to the outstanding balance of the promissory note.

Mr. Hebert argued that the contract was a fixed-term agreement without a valid early termination clause, entitling him to the full value of the contract upon early termination. Alternatively, he claimed that Clause 5.2 was ambiguous or unenforceable, or that the alleged invalidity of Clause 5.1 (termination with cause) rendered all of Section 5 invalid.

The court rejected these arguments. It found that Clause 5.2 clearly incorporated by reference the termination notice and payment requirements under the Employment Standards Code. Applying the principles of contractual interpretation from Sattva Capital Corp. v. Creston Moly Corp., the court held that the parties intended to restrict termination entitlements to the statutory minimums. The court also emphasized that the parties had explicitly protected other financial rights—like the promissory note—within Clause 5.2, further indicating deliberate and informed drafting.

The court found no ambiguity in Clause 5.2 and concluded that there was no basis for applying the principle of contra proferentem. It also disagreed that the clause led to an unreasonable result, noting both parties were represented by counsel. The court held that Clause 5.1’s definition of “cause” did not impose a stricter standard than that found in the Employment Standards Code, and therefore Clause 5.2 remained valid and enforceable.

Mr. Hebert also argued that he was entitled to eight weeks’ notice under the Code based on the continuity of his employment from his time with Lineside Electric Ltd., dating back to 2006. The court declined to accept this argument due to paragraph 6.3 of the share purchase agreement, which provided that Lineside would terminate all employees, including Mr. Hebert, effective July 31, 2021, and pay all entitlements. The court noted the absence of any evidence showing whether those entitlements were paid, and therefore could not conclude that Mr. Hebert was entitled to enhanced notice under Section 5 of the Code.

Finally, both parties submitted evidence related to their subjective understanding of the contract’s terms. The court clarified that such evidence did not fall within the permissible scope of surrounding circumstances for contract interpretation and was not relied upon in the decision.

Outcome

The Court of King’s Bench of Manitoba dismissed Mr. Hebert’s claim. It concluded that Colin’s Mechanical properly exercised its right to terminate the employment agreement under Clause 5.2 by giving notice in excess of what the Employment Standards Code required. The court found no ambiguity or illegality in the termination provisions and declined to consider speculative claims based on continuity of employment or the potential invalidity of related contract terms. The issue of costs was left for further submissions if necessary.

The decision did not make a final order on costs.