Your Employment Contract May Still be Valid after a Dismissal

A dismissal doesn’t always mean that an employment contract between an employer and an employee has ended. Typically, there are obligations both parties have to one another for a period of time after dismissal has occurred. It’s for this reason that the courts can invoke a judicial fiction which keeps the employment contract alive beyond dismissal and beyond the last day of work to assess damages.

Obligations Employers May Have to Employees after Dismissal

If an employee is owed notice or any sort of remuneration beyond the last day of work, keeping an employment contract alive after dismissal is necessary to calculate the provisions the employer owes the employee.  These can include:

  • salary
  • commissions and bonuses
  • stock options
  • benefit plans
  • vacation time

In cases where dismissal without cause has occurred, unless an employment contract specifically states otherwise, an employer must provide the employee reasonable notice.  Unfortunately, there are many employers out there who don’t fulfill this obligation and as a result, are in breach of contract.  Here, it's necessary to keep the contract alive during the notice period in order to calculate the damages the employer owes the employee and to assess whether or not the employee is still obliged to fulfill any fiduciary duties to the employer.

How are Employees Obligated to Employers Post-Dismissal?

After dismissal, an employee must make a reasonable effort to search for and secure equivalent employment, if it’s available, during the notice period. While it’s technically not considered a duty the employee owes the employer, mitigating one’s loss is a general principal of contract law which may benefit the employer.

The notice period can also offer some protection for the employer. For example, after dismissal, it’s the employee’s common law duty to not compete unfairly with the employer.  That’s not to say that an employee doesn’t have the right to offer goods or services that compete directly with a previous employer.  Unless otherwise stated in the employment contract, an employee CAN compete with an employer, but not unfairly. For example, it would be considered unfair competition if an ex-employee were to use confidential information and / or the client or customer contact lists of a previous employer as a way to drum up business.

Another way the employment contract may remain valid after dismissal is if the contract imposes a restrictive covenant on the employee. Employers impose restrictions to prevent previous employees from competing with the company or soliciting their staff and/or clientele. An employer may also try to impose restrictions based on what role or position an employee has while employed with the company.

Has an Employer Breached the Employment Contract?

A restrictive covenant can keep a contract alive for months or even years post-dismissal.  Whether it’s enforceable or not, depends on how the employment contract comes to an end. As restrictive covenants are generally contract-based, if an employer is found in breach of, or breaks the contract, it will likely be decided that the restrictive covenant within it is also broken.

An example of this would be if an employer fired an employee without cause and without providing reasonable notice (as stipulated in the employment contract) or the notice required by common law. This would be considered a fundamental breach by the employer. The contract may stay alive only long enough to calculate the amount of damages the employer owed the employee. It’s unlikely that the dismissed employee would have to adhere to a restrictive covenant within that contract. A fundamental breach of contract by an employer may also end any fiduciary duty owed by a dismissed employee.


However, if an employer isn’t in breach, the contract may still remain alive after dismissal and the employer can enforce the restrictive covenant on the departing employee.  These instances can occur when:

  1. the employee intentionally quits the job
  2. the employer dismisses the employee for just cause
  3. the employer dismisses without cause, yet provides full notice according to the employment contract

An employment contract can affect all aspects of your livelihood during a period of employment and may potentially remain valid for a time after it ends. Whether you are an employer or an employee, you can find out what this means for you by contacting Employment Contract Lawyer, Bob Yeager.


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