'Any employer that extends a fixed-term contract more than one time has some risk'
The Ontario Superior Court has upheld an employment agreement as fixed term despite ambiguous language because the agreement and its extensions were clear that the worker’s employment was temporary.
The employer in this decision was victorious, but it shouldn’t be taken to mean that fixed-term contracts are a good idea for employers in most circumstances, according to Christopher Achkar, principal of Achkar Law in Toronto.
“Fixed-term contracts are generally more dangerous for employers because they bind them to and essentially force them sometimes to pay the full amount or the remainder of the contract if someone is terminated prematurely,” says Achkar.
It's interesting because this decision went in the opposite direction to what we’ve seen he said. “Employers may mistake this decision as saying it's actually better as an employer to have fixed-term agreements, which it isn't.”
“The reason that the [employer] here got away with it is because it was such a limited number of extensions that were already contemplated in the agreement, which was fixed-term in its nature,” he adds.
Expected duration of two years
The worker was hired by the City of Barrie, Ont., in 2014 to be the manager of IT planning and portfolio in the city’s information technology department. His employment began with a fixed-term employment agreement that stated his position was a temporary full-time one.
The agreement also indicated that “the expected duration of your temporary employment is expected to be from June 5, 2014, to June 3, 2016 (approximately two years).” This was in accordance with the job posting to which the worker applied, which also included the statement that the position was for approximately two years.
In May 2016, the city extended the worker’s employment to Dec. 31, 2016. The employment agreement was extended three more times, with the last one going to Dec. 31, 2017. Each extension notice stated that the worker’s “temporary full-time position as manager, IT planning and portfolio” was being extended to a specific date.
The city emailed the worker on Dec. 21, 2017, to confirm that his contract was ending. The worker replied with an email expressing gratitude and best wishes and went to a lunch to mark the end of his employment. He also did not make any request for termination pay.
However, after his employment ended, the worker filed an action for wrongful dismissal damages amounting to eight months’ pay in lieu of notice plus punitive damages. He claimed that his employment agreement was ambiguous as to its term – pointing to the extension notices stating that “we look forward to your continued contribution” – and, as a result, he was a permanent employee whose employment was terminated without cause or reasonable notice.
An Ontario employer that constructively dismissed a worker in the first year of a 10-year contract had to pay out nine years of compensation totalling nearly $1.3 million.
High bar to avoid employment standards
The court noted that normal employment standards protections are generally unavailable to employees working under fixed-term employment agreements, so there was a high bar for clarity in the language of such agreements. Any ambiguity in the language would be “interpreted strictly against the employer’s interest,” said the court.
The court also noted that the Ontario Court of Appeal had stipulated that employers should not be able to avoid the traditional employment standards protections by labelling an employment contract fixed term if there was continuous service by the employee for many years and the conduct of the employer made the employment relationship actually of an indefinite term.
In this case, the court noted that the original employment agreement referenced an “approximate” term of two years for an “expected duration.” Despite this somewhat ambiguous language, the agreement also clearly stated that the worker’s employment was temporary full-time and provided an end date. The ambiguous terms only left open the possibility that the employment could be extended beyond two years or could be ended in less than two years. Either way, there was no wording that could have made a reasonable person understand that the term of employment was indefinite, said the court.
The court found that the notices for each of the four contract extensions may have been poorly drafted, but they left no doubt that the worker’s employment continued to be temporary, as they continued to refer to his “temporary, full-time position.”
The court also noted that the following all made it clear that the worker’s position was temporary:
- The job posting called for a temporary position.
- The original contract and all extensions called the position temporary with definite end dates.
- Extensions granted before the end of each term indicated that, without the extensions, the employment term would have expired.
- The city’s conduct indicated that it always intended for the worker’s position to be temporary.
A job offer that referred to a length of time for an assignment without a clear termination provision created a fixed-term contract, the Alberta Court of Appeal ruled.
Worker acted as if on fixed term
The court also found that the worker’s conduct suggested that he knew that his employment was temporary and of a fixed term. He never raised the issue of why his contract ended and had to be extended, he never asked why his employment wasn’t extended after the final end date, and he didn’t inquire about termination pay or a letter of termination following the end of his employment, said the court.
In addition, the worker pointing to the statement “We look forward to your continued contribution” in the extension notices as indicating an indefinite term was a distortion of the plain language in an attempt to give it a meaning that the wording couldn’t support, said the court.
The worker’s only real argument was that the multiple extensions could have created a continuous-service term of indefinite employment, but in this case the length of service and the low number of extensions wasn’t enough to bring that into consideration, says Achkar.
“Any employer that extends a fixed-term contract more than one time has some risk that it can be viewed as continuous – even if it says it’s fixed-term, it’s harder to turn around and say they only signed one contract,” he says. “The language in the contract will always prevail, and if something is ambiguous it will be used against the drafter, which is the employer here – [it’s important] to make sure that what is in there doesn’t give false hope or promises of indefinite duration without a contract being signed.”
The court determined that both the worker and the city treated his employment as a fixed term and neither party suggested that it was indefinite, as there was no ambiguity in the contract or the extensions. As a result, the worker was employed under a fixed-term contract that clearly ended and he was not entitled to any common law notice or severance payment, said the court in dismissing the action.
“If you're going to do fixed-term contracts that try to not pay termination pay, then you just have to be so clear about it and try to even avoid using the words ‘renewal’ to avoid turning into an indefinite period if we don't renew the fixed-term agreement,” says Achkar. “Anything that can be interpreted an opposite way to what you intended should just be finessed down to what it should be.”
