A recent decision of the Ontario Superior Court of Justice (the “Court”), Steele v The Corporation of the City of Barrie [Steele], offers important guidance regarding how courts interpret and determine the enforceability of fixed-term employment agreements, and signals a positive potential shift for employers on this issue.
Fixed-term employment agreements typically attract close scrutiny by the courts because of the limited entitlements and protections afforded to fixed-term employees under both the common law and the Employment Standards Act, 2000 [ESA]. Unlike employees hired indefinitely, fixed-term employees are not entitled to common law reasonable notice of termination (or pay in lieu) at the end of their employment term. Fixed-term employees whose terms of employment are one year or less are similarly not entitled to notice or termination pay under the ESA, but those with more than one year of service maintain those ESA entitlements. Because of this important distinction, courts have adopted an employee-friendly approach to fixed-term agreements, requiring “unequivocal and explicit language” in fixed-term arrangements. Where fixed-term agreements lack such language, the courts often consider the employment contract to be for an indefinite term, despite that the contract may say otherwise, and therefore order the employee to receive pay in lieu of common law reasonable notice.
The employee was hired by the employer on a fixed-term employment agreement that contained the following clause: “The expected duration of your temporary employment is expected to be from June 5, 2014 to June 3, 2016 (approximately two years)”.
The employee’s employment was extended four times. The first extension notice was dated May 4, 2016 and read as follows: “Further to your letter dated June 4, 2014, this is to confirm that your temporary full-time position […] has been extended up to December 31, 2016”. The employee was provided with three other extension notices that contained the same content and set out the new, relevant extension dates. The final notice was dated October 5, 2017 and extended the employment relationship to December 31, 2017. The employer declined to extend the employment relationship beyond this date, effectively dismissing the employee.
The employee commenced a wrongful dismissal action, arguing that the employment relationship was, in actuality, indefinite, and that he was therefore entitled to reasonable notice of termination (or pay in lieu).
The Court ultimately found that the employee was never employed under an indefinite term of employment, and as a result was not entitled to recover any damages under the common law. The Court found that although the initial fixed-term employment agreement and the successive extension notices were poorly drafted, they were neither unclear nor ambiguous regarding the nature of the employment relationship, which was consistently described as “temporary employment”. Additionally, each extension notice unequivocally provided a date “up to” which the employment would run.
The Court reasoned that the mere presence of imprecise language (such as references to “expected duration” and an approximate two-year term within the initial employment agreement) does not necessarily mean there is ambiguity in a contract, and a court should not strain to create ambiguity where it does not exist.
The Court further reasoned that even if there was ambiguity in either the employment agreement or the successive extensions, any uncertainty as to the nature and term of the employment would have been resolved by the following factors:
- Content of job posting: The job posting under which the position was offered, and to which the employee responded, clearly described the position as a temporary, and provided that the position was for “2 years approximately”.
- Timing of extensions: Extensions were granted before the end of the respective term, which suggests that absent those extensions, the employment term would have expired.
- Extensions not predestined: The extensions were not pre-destined by the employment agreement or the employer’s words or conduct.
- Conduct of the parties: The employment agreement and subsequent extensions were conceived as fixed and treated accordingly by all parties, including the employee. The court noted, in particular, that:
- The employee never raised the issue of why his contract ended and had to be extended in the first place;
- The employee never suggested or intimated that the agreement was permanent;
- The employee celebrated each extension as it was granted; and
- When the last term was not extended, the employee did not express surprise or concern, and never contacted the employer to request an explanation, seek severance pay or secure a letter of termination. Instead, the employee sent an email to the employer expressing his gratitude and best wishes, and even attended a lunch to mark the occasion of the end of his term.
Takeaways for Employers
The decision in Steele is a positive sign for employers, standing for the proposition that continuous service under successive fixed-term contracts may not attract a finding that the employment is permanent.
Steele offers the following guidance to help ensure that employers are clear and unambiguous about the temporary nature of fixed-term employment relationships:
- Use unequivocal and explicit language in fixed-term employment agreements: Employers should ensure that the terms of the agreement, including start and end dates, and the temporary nature of the underlying employment relationship are easily understood and that any potential ambiguities are eliminated.
- Consistently treat fixed-term employees as such: Employers should consistently treat fixed-term employees as temporary workers and make it clear that their employment will not be ongoing. The Court noted that the employer in this case treated the employee consistently as a fixed-term employee, and the employee behaved in kind, which helped to establish the nature of the employment relationship.
- Be mindful of the context in which fixed-term employment is offered: Employers should be mindful of the context in which they offer fixed-term employment, such as through job postings and initial employment agreements. The Court noted that the job posting and initial employment agreement in this case clearly described the position as temporary, which helped to establish the nature of the employment relationship.
- Monitor and document fixed-term employment extensions: Employers should monitor and document any extensions to fixed-term employment. The Court noted that the extensions in this case were granted before the end of the respective term, were documented in writing, and expressly described the employment relationship as temporary, which helped to establish the nature of the employment relationship.
However, despite Steele, employers would still be well advised to avoid entering into fixed-term employment agreements unless necessary for business and other operational reasons, given that the bulk of the existing case law has clearly demonstrated the many potential risks for employers flowing from such agreements. For example, as previous decisions have shown, where an employee is dismissed earlier than the end date of the stipulated term under their fixed-term agreement, and the agreement does not contain an enforceable termination clause, employers will be responsible for paying out the balance of the term of the contract. As the saying goes, if it ain’t broke, don’t “fixed-term” it.