Renewing contracts for shorter terms

Question: If a contractor has had a short-term contract renewed several times (such as for one year each), are there any legal concerns with the employer renewing the contract for a shorter term than all the previous contracts?

Answer: The law relating to fixed-term contracts is reasonably straightforward in its expression but is often less so in its application.

Under the orthodox view (and subject always to any contrary provisions in the contract itself), the expiry of the fixed term discharges the contract. Neither party would have an obligation to renew or a right to claim renewal. If the parties entered into one or more subsequent fixed-term contracts, even on identical terms, each successive contract would also expire at the end of its term with the same consequences. As an employer under such an arrangement would have no obligation to offer any contract, the contractor faced with an offer to renew for a shorter term would have no cause for complaint. The contractor could accept or reject the offer but could not successfully object to it as a breach of contract.

That said, there are a number of cases in which a succession of fixed-term contracts has been used to avoid creating an employment relationship of indefinite duration and thus to avoid the provision of reasonable notice that is usually required in such cases. The Supreme Court of Canada has repeatedly emphasized the importance of work to employees. The courts have responded by putting fixed-term contracts under severe scrutiny and by giving effect to the substance of the relationship over its form wherever possible.

The leading authority on this issue is the Ontario Court of Appeal decision in Ceccol v. Ontario Gymnastic Federation. In that case, a senior employee was employed under 15 annual fixed-term contracts. The employer gave the employee minimal notice of her termination, claiming it had no obligation to provide any notice of termination because the contract was simply not being renewed. Both the trial judge and the Court of Appeal rejected the employer’s characterization of the relationship.

It was held that the employment relationship was not, in reality, a series of fixed-term contracts but was employment for an indefinite term; as such, reasonable notice of its termination was required. The facts that were considered significant by both the trial judge and the Court of Appeal in reaching this conclusion were: the understanding of both the employee and her supervisors that the employee was a permanent employee; the assignment to the employee of multi-year projects; the employer’s offer to her of an opportunity to join its pension plan; the employer’s subsidization of multi-year education courses for the employee with long-term goals in mind; performance appraisals describing the employee as ‘full-time’; and the execution of the annual contracts both before and after the nominal expiry dates. The Court of Appeal also noted the existence of a provision that indicated the agreement was “subject to renewal,” “subject to acceptable performance reviews” and other provisions that suggested the possibility that renewal was not optional. Ambiguity in the contractual terms was to be interpreted in the employee’s favour, given the serious consequences of a finding that the contract was for a fixed term.

The Court of Appeal agreed with the statement of the trial judge that “in the final analysis, in these cases the decision to be made is what are the reasonable expectations of the parties. Overall, the employer’s conduct throughout the years had given the employee a reasonable expectation that the term and notice provision in the standard form contract used did not apply to her.”

Similar arrangements have resulted in similar conclusions in subsequent cases.

In Monjushko v. Century College Ltd., the plaintiff was a college instructor who had worked for a college under a series of appointments setting out the courses he was to teach in the upcoming semester and the amount of his compensation. The court held that the employer’s conduct was inconsistent with its characterization of the appointments as successive fixed-term contracts. In particular, the employer had issued only a single record of employment indicating a start date in 1996 and a last day of work in 2005. It was found that the employee had been continuously employed and was entitled to reasonable notice of the termination of his employment.

Two recent cases from Quebec have applied like principles with similar results.

In Quebec (Commission des normes du travail c. IEC Holden inc.), the variable nature of orders to be filled in the employer’s business led it to hire its workforce to meet needs as and when they arose and under short-term contracts. Many of the employees worked continuously, when one order followed on the heels of another. The employer declined to renew a number of the contracts when orders declined, without offering the affected employees any termination pay. The Quebec Court of Appeal considered the employer’s failure to advise the employees of the fixed-term nature of their contracts at the time of hire; the lack of attention paid to the execution of successive contracts; the absence of interruption in employment in most cases; the offer of benefits to the employees; and the expectation of the parties that one contract would follow upon the expiry of the previous one in reaching its conclusion that relationships of indeterminate employment existed on the facts.

In Atwater Badminton and Squash Club Inc. c. Morgan, a relationship of 17 years between a badminton club and its pro, with little change in working conditions, no real consideration of non-renewal of successive contracts of varying lengths, an informal arrangement for renewal of the contracts and a period of employment with no contract at all were strong indicators of its true legal nature as indefinate employment.

Despite these and similar cases, it is certainly possible to establish a fixed-term employment contract that expires without further obligations on either party at the end of its term and a number of cases have upheld such contracts according to their terms.

In Flynn v. Shorcan Brokers Ltd., the contractor was advised and was fully aware of the nature of the contract; the parties were sophisticated and equal in bargaining power; each fixed-term contract was negotiable when it was made; the opportunity to obtain legal advice was made available, although the contractor chose to forego it; the contract’s terms were comprehensive, clear and ambiguous on the issue of termination and did not contemplate renewal; and no verbal representations had been made that could be considered to have given the contractor the reasonable expectation that he was a full-time permanent employee. The contractor was not entitled to claim anything further from the employer when the third annual contract expired and negotiations for a new agreement were unsuccessful.

In Jacks v. Victoria Amateur Swimming Club, the court noted that there was no ambiguity in the termination provisions; the contractor had access to legal advice; and a prior offer of a contract of 2 years’ duration, as opposed to the earlier 4-year fixed terms, had been a matter of contention between the parties. These factors all pointed to the conclusion that the contractor was well aware of the termination provisions in his contract and of their import and could not claim notice of termination despite the lengthy relationship between the parties.

In Pennock v. United Farmers of Alberta Co-Operative Limited, a majority of the Alberta Court of Appeal held that a contractor who had worked for the employer as a bulk fuel agent for 12 years under a series of contracts had no claim for reasonable notice. The majority regarded the agency contract as unambiguous: it remained in effect for three years unless terminated sooner and termination could be brought about by either party on 30 days’ notice. Neither the prospect of renewal nor the contractor’s expectation of routine renewal amounted to a promise that the contract would be renewed. In the majority’s view, nothing in the contract or the facts justified an interpretation of the contract that departed from its express terms.

The dissenting justice disagreed, finding oral representations of the employer’s representative amounted to assurances the contract would be renewed as it had been nine times previously and conveyed to the contractor a sense of entitlement consistent with the parties' long-term relationship. In his view, this right of the contractor and corresponding obligation of the employer remained unaffected by termination of the agreement.

In Rossmo v. Vancouver (City) Police Board, the B.C. Court of Appeal held that an employer’s offer to the contractor of a lower-rated position upon the expiry of a five-year contract of employment was not a demotion as the employer had no obligation to offer the contractor any position. In that case, the contract contained a renewal clause, but it was consistent with the contract being one for a fixed term: “the agreement may be renewed by mutual agreement if such agreement is reached prior to December 31, 1999. If such agreement is not reached the employment…shall terminate on December 31, 2000, without any further notice.”

As all of these examples illustrate, it is certainly arguable that an offer to renew a fixed-term contract only for a shorter term could amount to a breach of contract and a constructive dismissal of the employee. The result would be dictated by all of the circumstances of the case.

Where both parties are clearly aware of the fixed-term nature of the successive contracts; where the contracts themselves clearly provide that each is limited to the specified term with no language capable of justifying an alternative interpretation; where the parties have consistently acted in a manner consistent with contracts being for fixed terms and expiring upon conclusion of the terms; and where there has been no conduct or representation made to effect a renewal or to justify a reasonable expectation of renewal, it is likely an offer of a shorter term would not give rise to a cause of action for breach of contract.

It should also be noted that obligations related to fixed-term contracts may be created by statute in some provinces. For example, employers in Ontario should be aware of the possible application of that province’s Termination and Severance of Employment Regulation. Section 2(2) of the Regulation states that an exemption from the obligation to pay termination pay to employment for a definite term or task does not apply if the term expires or the task is not yet completed more than 12 months after the employment commences or if employment continues for three months or more after the expiry of the term or the completion of the task.

For more information see:

• Ceccol v. Ontario Gymnastic Federation, 2001 CarswellOnt 3026 (Ont. C.A.).
• Monjushko v. Century College Ltd., 2008 CarswellBC 118 (B.C. S.C.).
• Quebec (Commission des normes du travail c. IEC Holden inc.), 2014 CarswellQue 8398 (Que. C.A.).
• Morgan c. Atwater Badminton and Squash Club Inc., 2014 CarswellQue 4531 (Que. C.A.).
• Flynn v. Shorcan Brokers Ltd., 2004 CarswellOnt 2874 (Ont. S.C.J.).
• Jacks v. Victoria Amateur Swimming Club, 2005 CarswellBC 1286 (B.C. S.C.).
• Pennock v. United Farmers of Alberta Co-Operative Limited, 2008 CarswellAlta 1030 (Alta. C.A.).
• Rossmo v. Vancouver (City) Police Board, 2003 CarswellBC 3012 (B.C. C.A.).