Another Peril Of The Fixed Term Agreement

emp agr
Employers often debate whether to engage people for an indeterminate period, or for a fixed term.

While there may be a superficial attractiveness to fixed term Employment Agreements, they are not without their difficulties. True, as a general proposition, when they come to an end they do so without the requirement of further notice or compensation. Note however the Ontario Court of Appeal decision in Ceccol v. Ontario Gymnastic Federation, 55 OR (3d) 614 for the proposition that a series of fixed term contracts can in some circumstances eventually amount to an “indefinite hiring” subject to termination only upon reasonable notice.

The same difficulty arises where the parties, through inadvertence, continue the employment relationship beyond the end of the fixed term. Again, the contract then becomes indefinite subject to the common law entitlement to reasonable notice as well as all of the protections of the Employment Standards Act.

Employers should also be aware that if they have a change of heart in the middle of a fixed term arrangement, they may have far less flexibility than would have been the case with an indefinite arrangement subject to an enforceable contractual termination. Absent such contractual termination provision, the employee is entitled to receive the compensation and benefits which would have accrued to the end of the fixed term.

A recent decision from the Alberta Court of Appeal serves as a reminder of the inflexibility of fixed term arrangements.

In Thompson v. Cardel Homes Limited Partnership, 2014 ABCA 242, the court was asked to assess the entitlements of a senior executive working for a Calgary home builder pursuant to a series of two fixed term agreements, the second of which provided for a severance payment in the event of early termination.

“…3) By Cardel in its absolute discretion for any reason other than cause, at any time by providing you with written notice to that effect, which notice shall provide for a termination date which is effective as of the date of the said notice, and without further obligation to you other than those obligations of Cardel set out in clause (4) below.

4) Where your employment under this Agreement has been terminated by Cardel under clause (3), you agree and acknowledge that you shall be entitled to receive from Cardel, in addition to outstanding entitlements to unpaid Yearly Salary and outstanding vacation pay to the effective date of termination, as well as any pro-rated share of profit sharing that you are entitled to (see Profit Sharing section of the contract), your entitlements under the Alberta Employment Standards Code (“ESC”) for notice and or compensation in lieu of notice. ... Additionally, you shall be entitled to receive a lump sum payment the (“Severance Payment”), of twelve (12) months base salary earnings. ... The total statutory notice and “Severance Payment” payable under this paragraph shall not exceed 12 months of “Yearly Salary” at the date notice of termination is provided.”

Rather than simply allowing the fixed term to expire on October 22, 2011, the employer delivered a letter to the employee one month in advance advising that the employer would not be entering into a new agreement with the employee.

This much would likely have not led to the result which ensued; however, the employer then proceeded to relieve the employee of any further duties during the balance of the contract. The employee was required to return all company property including his key card, building keys, computer and password and to gather his personal effects. His business email access was removed and third parties were advised that he was no longer with the company.

The court held that this conduct amounted to a termination of the employee’s contract and rejected the employer’s argument that the employee had somehow condoned the early termination by collecting his final month’s salary, benefits and profit share without protest. In the result, the Court of Appeal upheld the Judge’s award in the amount of $285,000.00.

Arguably an employer runs the risk of an adverse finding whenever there is a unilateral substantial change to a significant aspect of the employment relationship. In most fixed term contracts, this would lead to damages representing the compensation and benefits that would have been received by the employee over the unexpired balance of the term.

This case is another reminder that employers need to think carefully about the flexibility they forego before selecting fixed term arrangements for their employees.

Note: This a reprint of an article by Mark Jocelyn of Gowling Lafleur Henderson LLP.