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Posted on May 10th 2011 in Employment Law

Fixed vs Indefinite

When an employee is hired by an employer, it is usually for an indefinite term. There are, however, many people who are hired on a contract basis with a term of employment that is fixed. While the former are entitled to reasonable notice or payment in lieu should their employment be terminated, the latter are not, at least in most cases. The following cases involve two employees who worked on contract. After a number of years with their respective employers, their services were terminated.

Both sued for damages. One was successful, the other was not. Diana had worked as an administrative director for a provincial sports federation for nearly 16 years. Her employment was governed by a series of one-year contracts. Irene provided computer training for a school run by a First Nation.

She worked for the school for 11 years under a series of contracts that ran from September to June each year. Diana’s annual employment contracts all contained a clause (article 1.1) that her employment would commence on July 1st and terminate the following June 30th. The contracts also indicated that subject to acceptable performance reviews (article 1.2), the agreement was subject to renewal upon the consent of both parties as to terms and conditions. Each year, Irene prepared a proposal for her employer, which incorporated a fixed term. Following annual negotiations, the proposal was approved by she and the employer. Seven months before her current employment contract was due to expire, Diana learned that the federation would not be renewing some of its employment contracts. A few months later she was given written notice that, in fact, her’s was one of the contracts they had decided not to renew. Irene was informed that her position was to become a permanent one and was to be put out for tender and she would not be rehired.

Both women sued, arguing that, despite the fixed terms in their respective employment contracts, they were effectively employees hired on an indefinite term and therefore entitled to reasonable notice of termination or payment in lieu thereof. Diana was successful in her argument. Irene, on the other hand, was unable to persuade the Court. Why the different results? The starting point in both cases is for the Court to determine whether or not the terms of the employment contract are crystal clear.

The consequences of a finding that an employment contract is for a fixed term are serious and for this reason “the courts require unequivocal and explicit language to establish such a contract, and will interpret any ambiguities strictly against the employer’s interest.” (Professor Geoffrey England, Individual Employment Law (Toronto: Irwin Law; 2000) In Diana’s case, the Ontario Court of Appeal found that the relationship between articles 1.1 and 1.2 in the contract were not entirely clear. In particular, the words “subject to renewal” in article 1.2 were not self-defining and cast doubt on the federation’s argument that article 1.1 was effective in creating a clear fixed term contract. To rectify the ambiguity, the Court had to hear evidence from the parties as to their intentions and their conduct relating to the employment contract. The evidence in support of Diana’s position, that she was an indefinite employee, included:

  • Testimony by the executive director and two former presidents of the federation who all indicated that they had regarded Diana as an indefinite employee and that the 12 month term was simply the vehicle by which the terms and conditions of a new contract were negotiated each year.
  • Diana’s uncontradicted testimony about the initial job interview, wherein she and the interviewer had discussed that it was to be a fulltime permanent position.
  • Diana’s testimony that she would never have applied for a job that was only for one year.
  • The language in the contract that contemplated automatic renewal, including the linking of renewals to “acceptable performance reviews”, the requirement that performance reviews “shall be considered in annual salary negotiations” and the requirement that the employee’s salary be negotiated by a specified date before the end of the contract.

Based on the overwhelming evidence, the Court concluded that the employment contract did not contain the unequivocal and explicit language necessary to establish a fixed term contract and Diana was entitled to a 16 month notice period.

Unlike Diana’s employment contract, the wording in Irene’s contracts was not ambiguous. The Court in Irene’s case concluded that “No opening is provided to the court to ‘interpret’ the contract in a manner more favourable to the plaintiff.” Irene was a fixed term employee and was therefore not entitled to any notice. The following factors worked against Irene.

  • There was no renewal clause as there was in Diana’s case.
  • There was no formal appraisal process undertaken by the employer or incorporated in the contracts raising a potential basis for a suggestion of “employment” and a basis for a finding of ambiguity.
  • It was Irene herself who structured the annual proposal.
  • The term of the contract was for the school year only. Unlike the full-time teachers, Irene was paid only for the 10 months she worked.
  • Irene’s admission that from one year to the next, she was always uncertain whether her contract would be renewed.
  • She habitually would not return to work until advised to do so.
  • The employer’s policy that non-na-tives could only be hired on a term contract.

The Court concluded by stating that, “I am mindful of the danger of repeated ‘fixed term’ contracts, but in this case the underlying reality of the employment was that the parties specifically knew they were entering into successive, independent contractor, fixed term contracts.”

The difference in these cases really comes down to the wording in the two contracts. The wording in Irene’s contracts made it very clear that she was a fixed term employee. The wording in Diana’s contracts left room for doubt and in such cases the Court will interpret any ambiguities in favour of the employee and against the employer.

Employers can certainly make use of fixed term contracts of employment, however they need to ensure that the terms are clear for them to be enforced. Employees who choose to sign a fixed term contract should remember that they will not be protected by employment standards or the common law when it comes to job termination. For assistance with your employment law issues please contact our firm.