October 27, 2023
When does a fixed-term contract of employment become a contract of indefinite duration?
In Ontario and most of Canada, employees hired under a contract for an indefinite duration are entitled to “reasonable notice” of termination. In Ontario, although the Employment Standards Act provides the minimum notice, reasonable notice may be significantly more. If working notice is not given, the cash payment may be substantial, especially for long-service employees, older workers, or those with specialized skills who might have a tougher time finding similar work.
One exception to the concept of “reasonable notice” is that when the employment contract has a fixed term, no notice is required when the contract ends at the fixed date.
Difficulties arise when the fixed date is extended or the contract is renewed. Where a contract is renewed or extended repeatedly, it begins to look a lot like indefinite employment. There is no hard and fast rule as to how many extensions are safe- a court looks at the circumstances of each case.
If the employee can establish the pattern and convince a court that they had an objectively reasonable expectation that the contract would be renewed or extended indefinitely into the future, reasonable notice may apply.
This was the situation in Steele v. The Corporation of the City of Barrie.
The Plaintiff was employed by the City for over three years as an IT Manager. There was no dispute that he was first hired on a two-year fixed contract. That contract, however, was extended four times. The City maintained the position that the contract was still for a fixed term, so no notice or pay in lieu of notice was required.
In an earlier Court of Appeal case, it was made clear that where the reality of the relationship was an indefinite relationship, notice would be required.
That reality may be found by looking at both the words used and how the people acted in reliance on those words.
That appeal decision has been frequently considered and applied over the years, but the judge in Steele found otherwise.
The judge examined in detail eight aspects of the contract, the relationship, and the parties’ behaviour.
Both the original contract and the extensions were clear that the position was temporary. There was no evidence in the surrounding circumstances to support the suggestion that a reasonable person in Mr. Steele’s position would have thought the job was indefinite. Steele’s own behaviour indicated that he expected the position to be temporary.
The length of continuous service was also considered, and the three-plus years was much less than the 16 consecutive contracts in the Court of Appeal precedent. Reference, though, was also made to a case where 11 consecutive computer training contracts were held not to have become indefinite employment because, on each occasion, there was a clear recognition that a fresh contract was being entered into. This case was more similar to Steele. Mr. Steele was not entitled to reasonable notice. His claim was dismissed.
- Both employers and employees need to be clear about whether an employment contract is fixed-term or indefinite.
- In situations of disagreement, courts will look at:
- written contracts, but also at
- the surrounding circumstances and
- the behaviour of the parties
- Courts will not readily find that a series of fixed-term contracts became an indefinite contract.
- The cost of losing a lawsuit is substantial for either party.
- Even a successful party to the lawsuit will have legal bills greater than the costs of indemnity paid by the losing party.
- A lawsuit only makes sense if you might win.
- Sound advice is important upfront.
- Strong representation is essential if a lawsuit follows dismissal.
WHAT WEILERS LLP CAN DO TO HELP YOU
Whether you are an employer or employee, the growing complexity of the rules surrounding employment contracts and dismissal requires that you obtain timely advice.
At Weilers LLP, we have a track record of over 75 years in employment law in Thunder Bay and throughout Northwestern Ontario. Our progressive approach melds with this proud tradition to put our clients’ best interests first. This equips us to give you the sound advice you need, whether drafting an agreement or dealing with downsizing.
For the timely advice you need, give us a call and find out if Weilers LLP are the right lawyers for you.