Replacing full-time permanent employment with contract
Question: If an employer wants to terminate a full-time employee and then rehire the employee on a fixed-term contract, what would the notice entitlement for the termination be? Would the employee be required to accept the fixed-term contract as mitigation of damages from the termination?
Answer: An employer can terminate an employee without cause by giving the amount of notice required by the express or implied terms of her employment contract. Similarly, if an employer wants to make a fundamental change to the employment contract without the employee’s consent, the same notice is owed before the change can be implemented.
An employee’s notice entitlement can be set out expressly in the contract. If there is no contract with an enforceable termination clause, a requirement to give “reasonable notice” will be implied by the common law. Courts determine reasonable notice based on the circumstances of each case, with important factors usually being age, length of service, character of employment, and availability of similar employment.
If an employer terminates an employee without cause and fails to provide the required notice, the employee will have been wrongfully dismissed. Similarly, if insufficient or no notice of a fundamental change to an existing contract is provided, the employee may treat the change as a constructive dismissal. Either circumstance gives rise to a right to claim damages from the employer in lieu of notice. However, a dismissed employee has a duty to mitigate her losses by seeking comparable alternative employment, unless the employment contract provides otherwise. Whether an employee will be required to mitigate by accepting a fixed-term contract with the same employer will depend on the circumstances of each case.
In Evans v. Teamsters, Local 31, the Supreme Court of Canada dealt with the issue of when an employee who has been wrongfully dismissed is required to mitigate damages by accepting an offer to return to work for the same employer. The court emphasized that the same duty to mitigate will apply in the context of a constructive dismissal.
The Supreme Court found that the central question is whether a reasonable person in the position of the dismissed employee would accept the employer’s offer. For example, a reasonable person might be expected to do so if the salary is the same, the working conditions are not substantially different, the work is not somehow demeaning, and the personal relationships involved are not acrimonious. However, an employee cannot be expected to return to work in an atmosphere of hostility, embarrassment or humiliation.
If an employer wants to move an employee from an indefinite term contract to a fixed-term contract, the first option would be to persuade the employee to agree to this change. To make the new agreement enforceable, the employee would need to be given some sort of valuable consideration (such as a signing bonus or a salary increase) in return for agreeing to the new contract.
If the employee is not inclined to agree to the change, the employer could provide the employee with notice of termination of her current contract and an offer of re-employment at the end of the notice period under a new fixed-term contract. As noted above, the amount of notice that would be required would be the same as the notice needed to terminate the employment relationship.
If the employer sought to move the employee from an indefinite contract to a fixed-term contract without providing sufficient notice, the employee could claim constructive dismissal. However, the employee would have a duty to mitigate, and the issue would be whether the employee was required to accept the fixed-term contract being offered in mitigation of damages. This would depend on the terms of the fixed-term contract. For example, if an employee who has been employed for a short period of time is offered a fixed-term contract with a term of one year or more, with an equivalent position and salary, it would likely be difficult for the employee to argue that it would not be reasonable to accept that contract. By contrast, if a long-service employee is offered a fixed-term contract with a relatively short term, or with a reduced salary, the employee would likely be able to reject that offer and pursue a claim for wrongful dismissal damages.
The position that is offered will also be important. In Chong v. Nuance Global Traders (Canada) Inc., a computer systems analyst was dismissed and then offered a four-month contract as a project manager. The court ruled that the employee was not required to accept because the fixed-term role involved duties vastly different than the full-time role.
For more information see:
• Evans v. Teamsters, Local 31, 2008 CarswellYukon 22 (S.C.C.).
• Chong v. Nuance Global Traders (Canada) Inc., 2002 CarswellBC 823 (B.C. S.C.).
