Worker with Fixed-Term Contract Has Wrongful Dismissal Claim Denied

Written on behalf of Peter McSherry

Last month, we discussed a concept that we often see in the employment law context: whether a worker should be characterized as an employee or an independent contractor. This week we’ll turn to a related concept: whether an employment relationship is fixed-term or indefinite. The answer to this question has major implications for a worker’s entitlements under Ontario’s Employment Standards Act (the “Act”). In a recent decision, the Ontario Superior Court of Justice offered guidance on the issue.

Fixed-term versus indefinite: Why the distinction matters

The classification of a worker as fixed-term or indefinite is key in determining the worker’s employment rights. Unlike those working under indefinite-term contracts, someone working under a fixed-term contract isn’t entitled to statutory or common law reasonable notice of termination. This is because, under a fixed-term contract, the employment relationship naturally comes to an end at a specified time or the completion of a certain project. 

Worker hired on fixed-term agreement has it extended four times 

In Steele v. the Corporation of the City of Barrie, the plaintiff was hired by the City on a fixed-term two-year employment agreement. The agreement included 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 plaintiff’s contract was extended four times. The first extension notice, received on May 4, 2016, read:

“Further to your letter dated June 4, 2014, this is to confirm that your temporary full-time position as Manager, IT Planning and Portfolio in the Information Technology Department has been extended up to December 31, 2016.”

The subsequent notices were the same and set out the new relevant extension dates.

Worker brings wrongful dismissal claim after employer declines to extend contract

After three and a half years, the City declined to extend the worker’s employment agreement any further. The worker started a wrongful dismissal claim against the City, claiming that his employment was terminated without cause and without reasonable notice or pay in lieu. 

The plaintiff argued that he was a permanent employee — rather than a temporary, fixed-term employee —because his agreement was ambiguous as to the term. He argued that, even if he was initially a fixed-term employee, the City’s conduct over the course of his employment suggested that his employment was indefinite and, therefore, permanent. 

Court reaffirms unequivocal language required in fixed-term employment agreements

Because fixed-term workers don’t enjoy the same protections under the Employment Standards Act, the Court explained that the common law requires explicit and unambiguous language in fixed-term employment agreements. Any ambiguities on this point should be resolved in the worker’s favour.  

However, just because an agreement uses imprecise language doesn’t mean that it should be characterized as ambiguous. For ambiguity to be present, there must be at least two reasonable interpretations that the agreement can bear. Whether an agreement is fixed-term or indefinite is a question of fact that turns on the language of the agreement and the reasonableness of the parties’ assumptions. 

Court finds no ambiguity in fixed-term employment agreement 

Turning to the initial term clause in the agreement, the Court found that it was precise in setting out the exact dates for the employment duration. There was no ambiguity in the language used — the terms “expected duration” and “approximately two years” simply left open the possibility that the worker’s employment may be extended beyond the term.

Similarly, the extension notices were clear in defining the exact period of time covered by each extension. There was no objectively reasonable basis for the plaintiff to conclude that his employment was indefinite. Further, the plaintiff’s conduct didn’t suggest that he considered himself to be a permanent employee. For example, when his contract wasn’t extended, he didn’t contact the City for an explanation or ask for severance pay. 

Facts that would resolve any ambiguity in the employment agreement

Even if the language in the initial agreement or extension notices was ambiguous, the Court found that it would have been resolved on these facts:

• The job posting, employment agreement and extension notices all confirmed the employment was temporary. They each provided precise dates when the employment would end.
• The extensions were granted before each successive term was to end. This offers proof that without these extensions, the plaintiff’s employment term would have expired.
• The extensions were not pre-destined by the employment contract or the City’s words or conduct. 
• The initial contract and the extensions were conceived as fixed and treated as such by all parties.
• The plaintiff’s evidence that his employment was indefinite was unreliable and weak.

Continuous service didn’t establish an indefinite employment relationship

The Court considered cases where continuous service for many years, together with verbal representations and the conduct of the parties, established an indefinite-term employment relationship. The cases they referred to involved highly ambiguous contractual language, as well as behaviour by the parties pointing to a more permanent employment relationship. 

The present case was clearly distinguishable on the facts. There was no ambiguity in the fixed-term contract or the extensions. There was no indication in the discussions between the parties or their conduct to suggest that they intended anything other than a fixed-term employment relationship. 

Takeaways for those working under a fixed-term employment agreement

Since fixed-term workers are not entitled to the same reasonable notice on termination as permanent employees, employers are incentivized to hire staff on fixed-term agreements. 

However, as we saw with independent contractors, the terms used in an employment agreement won’t always be taken at face value. The Court will look at the entirety of the contract and the nature of the employment relationship to decide this issue. But when the circumstances do truly point to a fixed-term arrangement, the agreement will be upheld. 

Contact Guelph employment lawyer Peter A McSherry for assistance with unfair termination

 If your employment is terminated without reasonable notice or severance from your employer, you may have a claim for wrongful dismissal. Even if your employer claims the notice or severance you received was adequate, it pays to check with an employment lawyer. With over 15 years of practical experience, Peter A McSherry and his team frequently help manage and resolve issues relating to wrongful dismissal. We can help you with any concerns you have about your employment contract or dismissal and offer guidance on your best options moving forward. Reach us online or by phone at 519-821-5465 to speak to a member of our employment law team.