'They need to be handled correctly; if not, there can be really poor consequences for employers'
A recent decision out of Ontario looking at a fixed-term contract provided good news for employers, in determining an IT manager was not wrongfully dismissed or due severance.
But in highlighting best practices, the case also serves as a reminder of the risks involved with these types of contracts.
“These fixed-term contracts can be really beneficial to employers, but they need to be handled correctly. And if not, then there can be really poor consequences for employers,” says Andrew Weizman, associate at McCarthy Tétrault in Toronto.
“You have to be conscious of the risks of fixed-term employment agreements — not just at the drafting and contract stage, but throughout the employment relationship.”
Contract extended
Greg Steele was employed by the City of Barrie, just north of Toronto, from June 2014 until December 2017, as manager of IT planning and portfolio.
The municipality hired Steele under a fixed-term contract for an “expected duration” of two years, and then extended it on four separate occasions, with notices stating his “temporary full-time position… has been extended” until a certain date.
At the end of 2017, the contract expired or was not extended. But Steele claimed his employment was terminated without cause and without reasonable notice or pay in lieu thereof. He asserted that he was a permanent employee because his employment agreement was ambiguous about its length.
And even if he was a fixed-term employee, Steele claimed that the city’s conduct and representations over the course of his employment led him to believe that it was indefinite and, therefore, permanent.
Steele sought $66,355 for wrongful dismissal, with a claim for eight months’ pay in lieu of notice as well as punitive damages.
Ambiguities ‘interpreted strictly’
The protections afforded to employees under the Employment Standards Act, 2000 (ESA) are generally unavailable to persons working under a fixed-term agreement, said Justice John McCarthy in the Ontario Superior Court of Justice decision Steele v. The Corporation of the City of Barrie.
“For that reason, the common law has required unequivocal and explicit language in fixed-term arrangements; ambiguities in such agreements will be interpreted strictly against the employer’s interest,” he said, citing the 2001 decision Ceccol v. Ontario Gymnastics Federation, where the employee was employed for 16 years under 15 one-year agreements:
“Employers should not be able to evade the traditional protections of the ESA and the common law by resorting to the label of ‘fixed-term contract’ when the underlying reality of the employment relationship is something quite different, namely, continuous service by the employee for many years coupled with verbal representations and conduct on the part of the employer that clearly signal an indefinite-term relationship.”
However, the presence of “imprecise language” does not necessarily mean there is ambiguity in a contract, said McCarthy, and it’s important to consider the “true intentions of the parties.”
Barrie’s letter of employment was precise in setting out the exact dates of the contract’s initial duration, said the justice, who could not find “any ambiguity in the wording of the letter” and “at no time before the extension notice was there any objectively reasonable indication that the employment term would be indefinite.”
While the successive extension notices “may have been poorly drafted… they were neither unclear nor ambiguous,” said McCarthy, who did not accept that Steele “could have reasonably formed the impression that his employment term was indefinite.”
Therefore, he did not qualify as a permanent employee and there was no breach of contract and no wrongful dismissal.
Clear dialogue, behaviour
The key thing for an employer to note is if they intend to hire somebody for a definite period of time — which may be appropriate, given their circumstances or organizational needs — they need to end it “diligently and vigilantly” on the expiry date, says Paulette Haynes, founder and managing officer of Haynes Law Firm in Toronto
“The bottom line... is that the language has to be clear and unequivocal, she says. “Any ambiguities are going to be construed against the employer and in favour of the employee.”
There have been cases where continuous service for many years, “together with verbal representations and the conduct of the parties, established an indefinite-term relationship to which common law and statutory protections would apply,” said the court.
In Ceccol, for example, the individual was treated as an indefinite-term employee, performance reviews were involved and there was ambiguity in the contract. But this was not the case for Steele, said the court.
The Steele case makes the point that if the behaviour or communication from the employer could “open the door for an expectation beyond a definite-term contract, you’ve got to be careful with that as well, because that could signal an indefinite-term relationship,” says Haynes.
The biggest thing to be careful with is that you're not masquerading something else as a fixed term, says Weizman.
“That's why the employer in this case was successful is that they were very clear, from beginning to end, that it was a fixed-term relationship,” he says, citing the municipality’s job ads, fixed-term contract and renewals.
“They never treated the relationship as though it could last longer than the fixed-term amounts.”
If, on the other hand, a fixed term turns into an indefinite one — when the employer lets the term expire while still providing work — “that's something that courts will look at,” says Weizman.
On the opposite end, it can also “very painful” for employers if an employee is fired before the end of the fixed term, he says, citing as an example the 2022 decision Tarras v. The Municipal Infrastructure Group Ltd, where an employee with a three-year contract was fired after 11 months.
“Because it was a fixed-term contract, the courts will construe that as liquidating the damages, meaning ‘You breached this contract by firing them early, so you actually owe the full three years of pay.’ So that employee got 23 months,” says Weizman.
Sometimes a fixed contract will have a provision about reasonable notice but, generally, with a valid fixed-term employment agreement, notice is the end date, he says, “so if you say, ‘It's going to end three years from the date this is signed,’ then the employee has notice from the get-go.”
Best practices for fixed-term contracts
Citing the Ceccol case, Haynes says it’s advisable not to include an automatic renewal clause in the fixed-term contract.
“The intention might have been with the employer, ‘We want it fixed term,’ but they had these, what I call, serial fixed-term contracts over a longer period of time,” she says, and the “employee in that case was treated more like an employee who was hired on an indefinite basis to which then common law entitlements might kick in.”
Employers should also pay attention to their conduct, says Haynes, citing another case mentioned in the Steele decision, the 2015 Michela v. St Thomas of Villanova Catholic School:
“What was germane to their school was to keep people on indefinitely. So what the employer says, how the employer behaves, can also get broken into the broader analysis about whether the intention really is to have an employee who works for a definite term versus an indefinite term.”
In some situations, it could be better if the employer just hired the person on an indefinite or permanent basis, with a well-drafted employment contract, she says.
“That, I think, would be a lot less cumbersome for the employer than doing the successive contract thing over a long period of time… just hire them on an indefinite basis, and then have your appropriate termination provisions.”
Courts are “wise to the fact” that some employers may use fixed-term contracts to get out of obligations, such as severance, says Haynes, but when they continue it over time, as seen in Ceccol, “that behaviour could bode badly for the employer if it were to be found out or if it's construed that the reason why you did this is just because you want to avoid certain liabilities.”
That’s not to say that's fixed-term contracts aren't appropriate, she says.
“Given [an employer’s] organizational structure, what the tasks are, it might make sense from a business perspective to say, ‘Hey, we'll bring on Joe Public, but we only need them for a year or for six months.’ But if they do that, a caution, I would say, is make sure you're very vigilant about ending the contract on that date.”
