Employers who fail to manage expiry dates, document employee acknowledgment, or renegotiate terms risk converting fixed-term positions into indefinite employment with full notice obligations
A November decision from the Court of King's Bench of New Brunswick (CKB) has provided critical guidance on what separates a legally binding fixed-term contract from a liability.
In Gbongbor v. Multicultural Association of Fredericton, it was ruled that "an employee whose contract is not renewed at the conclusion of a fixed-term contract is not entitled to any reasonable notice."
The principle is well-established in common-law Canada: fixed-term contracts that are properly structured and documented eliminate an employer's obligation to provide notice or severance when the term expires.
But as Kelly VanBuskirk, labour lawyer at VanBuskirk Law in Saint John explains, that protection – worth potentially thousands of dollars to employers – only exists when several conditions align, including variation in the contracts and the ability to negotiate.
“The court in this case felt that although the employee signed a series of fixed-term contracts, they were different in a few different ways,” he says. “And the employee had been able to negotiate the terms of those contracts as they expired.”
Employee understanding key in fixed-term contracts
When employers and employees engage in genuine discussions about contract terms at each renewal, it demonstrates to courts that the fixed-term nature is real, not a fiction masking indefinite employment, VanBuskirk explains.
The court in Gbongbor emphasized that the employer had offered contracts of “varying length, duties, pay and work hours,” and that Gbongbor “signed the contract, confirming he understood its terms and accepted them.”
This pattern of variation signals to courts that these are independent contract negotiations, not mechanical rollovers. “That's helpful because what it demonstrates to the court is that the parties are re-engaging negotiation of the contract each time that an expiry date occurs," VanBuskirk explains.
The danger lies in the alternative approach. When an employer mechanically renews contracts year after year without substantive changes, renegotiation, or evidence of active choice, courts begin to view the fixed-term labels as in-name-only.
Employers who have renewed the same contract dozens of times with the same terms face particular risk of this recharacterization; VanBuskirk references a line of Ontario cases, including the Ceccol v. Ontario Gymnastic Federation decision.
“The contracts just flowed from one to the next without any real attention being paid by the parties,” he explains.
“That's problematic, because in those circumstances, the court is more likely to conclude that these fixed-term contracts are really just pieces of a larger employment relationship. And that's where employers run into difficulty with having to pay higher reasonable notice periods.”
Automatic termination clauses
The Gbongbor decision highlights a specific contractual feature that courts value: clear, automatic termination language. “The evidence is that the contracts provided for automatic termination unless the term was extended by written agreement,” the court noted.
Without explicit language stating that a contract expires automatically, VanBuskirk warns that courts may find that an employment relationship that continues beyond the stated end date has implicitly renewed on new, unwritten terms.
“There should be a clause to indicate that the termination date is a specific date and that the employment contract ends automatically, unless it is agreed in writing by both parties that it will be extended,” he says.
“In other words, if the termination date is Nov. 30, then the clause should say that ‘This employment contract will expire automatically on Nov. 30 at 12 midnight, and it will not be extended under any circumstances unless the parties agree to that specifically in writing’.”
The risk of overholding with fixed term employment contracts
The reason why clear contract language matters becomes clear when examining what happens when employers fail to enforce it – VanBuskirk describes a legal doctrine that can transform fixed-term contracts into indefinite ones almost overnight: overholding.
“What sometimes happens is that everyone forgets when the employment contract is due to expire,” he says.
“The argument then becomes that a brand-new employment contract has started, and that one has no fixed term and no termination clause in it. And, as a result of that, the employer could well be liable for reasonable notice damages based on a longer relationship than was intended.”
VanBuskirk explains that once overholding occurs and a new contract is deemed to exist, attempting to “fix” the problem by introducing a written contract with better terms will not work if it’s not done properly.
The absence of communication is often what leads employers into overholding situations, he adds. If an employee simply continues to show up and perform work, and the employer does not say anything, the court can treat continued work as the beginning of a new contract on indefinite terms.
“The court can come to a conclusion that there has been a brand new contract formulated, but that brand new contract is verbal only, and it doesn't have a termination date, and it does not have a fixed termination or reasonable notice clause,” he says.
“As a result of that, the liability for the employer can escalate very quickly.”
