Assignment becomes fixed term for Alberta worker

A job offer that refers to a length of time for an assignment may be considered a fixed-term contract if there is no clear termination provision, according to a recent decision by the Alberta Court of Appeal.

And that reinforces the importance of a clear termination provision in any employment contract, says Tim Mitchell, a partner at McLennan Ross in Calgary.

“If there were a termination clause in the fixed-term contract and it was clearly drafted, and it was enforceable because it wasn't ambiguous, it would have made all the difference,” he says. “If you use fixed-term employment contracts, it is imperative that you draft a termination clause in those contracts — that relieves you of the obligation as an employer to pay out a contract.”

Professional accountant at Shell

Terri Rice was a professional accountant who worked under two fixed-term contracts with Shell Global Solutions Canada, a Calgary-based group of energy and petrochemical companies, after an employment agency initially assigned her to some work with Shell.

In 2011, Shell converted Rice’s fixed-term employment to “regular, full-time employment.” Five years later, the company initiated a “managed open resourcing process” in which it eliminated jobs. Those who had jobs were required to re-apply and compete for the remaining positions. Rice competed for and received an offer of employment for the position she had held at the start of the process.

Shell’s offer stated that it didn’t contain the full terms and conditions of employment and the company would send her an employment contract to sign before she started. It also stated that her “assignment length will be four years” and there was no termination provision.

However, Shell didn’t send an employment contract and Rice’s request for the full terms and conditions of employment went unheeded. Rice assumed that, based on the employment offer, the company intended for her employment to last for four years and she couldn’t apply internally for another position during that time, as the company’s HR policy materials defined “assignment length” as a requirement that the employee work in the role for the specified period of time.

There can be surprising obligations when it comes to termination of fixed-term contracts, say an employment lawyer.

Termination with 15 months’ notice

In May 2017, less than 14 months after the employment offer, Shell terminated Rice’s employment without cause. The company proposed to pay her for 15 months’ reasonable notice in recognition of her eight-plus years of service, but Rice contended that she was on a four-year fixed-term contract with no provision for early termination. She claimed entitlement to pay for the balance of the contract — 34.5 months.

The Alberta Court of Queen’s Bench found that “the law presumes an indefinite term employment contract,” but the employment offer’s provision of a fixed assignment length “promised four years of employment.” Without any alternative definition provided to Rice, the most plausible meaning for both parties to the contract, or “assignment,” was that she was guaranteed four years of work and contract could be ended at any date with reasonable notice after that period of time elapsed, the court said.

“What’s interesting in this case is that [Rice’s] employment kept morphing form indefinite to fixed term and then back to indefinite,” says Mitchell. “Usually, if you have an employee on a fixed term who then continues with the employer, it turns into an indefinite term, but you need that clear wording.”

Shell appealed the decision, arguing that Rice was an employee of indefinite duration and was entitled to 15 months’ reasonable notice.

The Court of Appeal noted that “one of the employment law principles which courts have articulated is that clear language is required to create a fixed-term employment contract,” although the intention of the parties is an important factor to be determined. In this case, there was no termination provision, so there was nothing to suggest that Rice or Shell expressly agreed that the employment could be terminated with reasonable notice before the end of the four-year assignment.

When Shell offered Rice the position for which she had successfully applied, she had reason to believe that she would not be terminated for the length of her assignment — something an objective observer might also reasonably believe, the court said.

The appeal court found that the employment offer didn’t have many defined terms, but it made a clear and unambiguous statement that Rice’s assignment length would be four years. Since Shell didn’t provide any additional terms and conditions of employment and Rice had no other way of knowing Shell’s intended meaning of “assignment length,” this was the language governing Rice’s employment.

This take on the contract wording by both courts is somewhat unusual, says Mitchell.

“This created a new hybrid circumstance, which was not really a fixed-term employment contract and not really an indefinite hire, based on the use of the word ‘assignment.’ When it comes to employment contracts, I think you're either on a fixed term or you are indefinite, there's no middle ground that I'm aware of. If this truly is a hybrid scenario, then I would say the application of this case to others is probably less significant, because it's so factually, heavily weighted to the analysis of this hybrid sort of approach.”

The majority of the appeal court dismissed the appeal and upheld the award for a notice entitlement of the balance of the four-year fixed-term contract — 34.5 months. However, because Rice found alternate employment, Shell wasn’t liable for paying out the entire contract — a precedent established for Alberta that isn’t enjoyed by employers elsewhere.

“One positive aspect of this decision for employers is the fact that in Alberta, it was confirmed that there is a duty to mitigate,” says Mitchell. “So the actual cost to Shell is not nearly as significant as one would see. And that that is very different than the approach in Ontario, where there is no duty to mitigate your damages in a fixed-term contract where there's been a breach.”

Different jurisdictions have different approaches to mitigation for fixed-term employees.

Regardless, the decision serves as a warning for employers in all jurisdictions about the pitfalls of fixed-term contracts and the importance of clarity, says Mitchell.

“If you don't have a clearly worded termination clause in a fixed-term employment contract, you are potentially looking at paying out the balance. I think, in most circumstances, employers are better off looking at indefinite-term employment contracts where the most you're looking at paying out is reasonable notice, which is going to be substantially lower than what you would pay out on a fixed-term employment contract for breach. Employers are better off drafting clearly worded indefinite-term employment contracts with strong termination clauses.”

See Rice v. Shell Global Solutions Canada Inc, 2021 ABCA 408.