Some do so in the belief that the employee will be gone without recourse at its expiry. But far more certainty is created through an effective termination provision, allowing for termination at any time. And with a fixed-term contract, you have to wait until its end or pay them until that end.Besides, most employers are poor administrators. More often than not, they forget to have the employee leave when the contract expires. And if the employee works beyond the contract’s end, it either automatically renews or the employee becomes entitled to general wrongful dismissal damages.
Another problem is that if a fixed-term contract is renewed, time and time again, almost automatically, the courts generally interpret that there is no longer a genuine intention for the employment to end on its expiry but, rather, view the contract as simply a mechanism to negotiate new compensation arrangements until the next contract.
The Ontario Court of Appeal summed it up in the Ceccol decision.
“It seems … that a court should be particularly vigilant when an employee works for several years under a series of allegedly fixed-term contracts,” the court ruled. “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.”
It is not always the case that definite-term contracts renewed several times cannot be terminated at their end. In the recent decision of Steele v. City of Barrie, Steele was hired on a two-year fixed-term contract, extended on four separate occasions. When the employer decided not to extend it further, the employee sued for wrongful dismissal. In that case, the court found that the parties unambiguously intended a definite-term agreement ending at the expiry. The language was clear and there was nothing the employer did to create the apprehension that it was indefinite. The job posting and the extensions all made clear that the employment would end at the contract’s expiry and each extension was granted before the expiry, indicating that the employment would have ended at that expiry if the extension had not been provided. Indeed, the employee himself made the error of expressing his best wishes when told that his employment had ended, signalling that he understood that the company had the right to end it then. But such cases are in the minority.Many think that they can avoid all of these problems by including a right to terminate a fixed-term contract on an earlier basis. But as you have read in many of these columns, most early termination clauses are unenforceable and the Supreme Court of Canada in Matthews v. Ocean Nutrition, a case in which I represented Mr. Matthews, declared that such a termination provision, or any punitive term in an employee’s contract, must be interpreted strictly against the employer and cover the precise circumstance which gave rise to the ultimate termination. In other words, simply saying that it will apply if an employee is terminated “without cause” is generally insufficient. As the Court of Appeal also stated in Ceccol, “The courts require unequivocal and explicit language to establish such a contract, and will interpret any ambiguities strictly against the employer’s interests.”Compare that to a typical wrongful dismissal action when the employee is not on a term agreement. Let us say that employee is held entitled to 18 months’ pay. If the employee finds comparable work at the same income in, say, seven months, the employer will be on the hook only for those 7 months. Almost no employee is awarded by the court more than 24 months in the absence of a contract but those 24 months are merely titular if the employee finds other work within it. But many term contracts are, as in the Dornan case, for five years. If such an employee is fired after six months and gets another job after seven more months, rather than being entitled only to those seven months, they are entitled to the balance of the contract or the 4.5 years remaining. That should be enough to make any employer pause before entering into fixed-term agreements.Although, one can create a fixed-term contract which ends at a certain point, I always advise my employer clients that there is no real point. If a contract is for a project of only a few months and there is a strong early termination date in case the employment does not work out or the employee is no longer needed, fair enough.
But a fixed-term contract as a substitute for an indefinite term one will otherwise inexorably lead to a mountain of woe.
