Fixed term contracts can be valuable tools for managing short term or temporary assignments, but can be dangerous and costly to employers. There are many ways that these types of employment arrangements can go sideways with significant implications on the employer. As one example, the renewing fixed term contract over many years (see Ceccol v. Ontario Gymnastic Federation 2001 CanLII 8589 (ON CA)). Other dangers can occur where the employee is allowed to continue to work beyond the end of the term or where the contract doesn’t set out a clear an unambiguous mid-term termination provision.
The Alberta Court of Appeal considered another costly issue for employers under these arrangements in Thompson v Cardel Homes Limited Partnership, 2014 ABCA 242 (CanLII).
The issue in this case was whether a senior executive, employed under a fixed term contract, was terminated, during the term, without just cause or whether the contract merely expired at the end of its term and was not renewed. The answer to the question was important. According to the Court of Appeal:
The contract conferred upon the employer absolute discretion to terminate the contract at any time by giving four weeks’ written notice. But if the employment contract was terminated on such written notice, the employee was entitled to receive a lump sum payment of 12 months’ salary.
If the contract was merely not renewed, presumably, no payments were required.
One month before this second fixed-term contract was to expire, the executive was sent a letter informing him that there would be no renewal of the contract beyond the expiry and there would be no new contract entered into. The letter also advised the executive that he “would not be required to attend work for the remainder of the term of the contract, although he would be paid to the end of the term. The letter also instructed him to immediately return the keys to his place of employment, his card key and his computer password.” His email access was discontinued.
The President and CEO of the company assumed “all the employee’s duties effective immediately and that his service with the company would end that day (one month before the expiration of the fixed-term contract)” and persons outside the company were “immediately” informed that the executive was no longer with the Company.
The executive argued that the employer terminated his employment triggering the obligation to provide notice and a 12 month salary payment. The employer argued that it provided the executive with 4 weeks notice that it would not be renewing the contract or entering into a new one, and, to assist him with his job search, relieved him of his obligation to attend at the office to work.
The Trial Judge found that the employee had been terminated when the employer relieved him of his duties and sent him home. As such, the executive had been terminated and was entitled to the contractual severance payment of 12 months’ salary.
The employer appealed and the Court of Appeal dismissed the appeal finding that, viewed objectively, the letter and employer actions constituted a termination. It put the conclusion as follows:
Here the employee was not permitted to continue his employment. He was not permitted to discharge his duties or exercise his powers. They were assumed by another. He was not even allowed to come to the office. These facts can support a finding of constructive dismissal and termination. Even if one could justify a different view of the facts, the trial judge’s view is entitled to deference.
By not obtaining the employee’s agreement to a parting of the ways prior to the end of the contract, the employer denied the employee the opportunity to complete his tour of duty and all that that entails in an employment relationship. When no attempt is made by an employer to obtain an employee’s consent to early termination of a fixed-term contract, the employer risks a finding of termination. When there is evidence of a unilateral change in the terms of employment, the employer runs the risk of being found by a court to have terminated the employee without cause. These are the findings the trial judge made in this case. And those findings disclose no error. Nor are they unreasonable.
In this case, unlike in many, the employer and employee agreed to a payment should the contract be terminated early. That payment was 12 months salary (rather than what was owing to the employee to the end of the term).
Fixed term contracts are, indeed, risky for employers. Careful monitoring of their expiry dates and ensuring proper drafting to deal with mid-term terminations are important. In this case, had the employee been given notice and then allowed to “complete his tour of duty”, to use the words of the Court, then, presumably, his claim would have been dismissed and no damages would be owed. It was the relieving of the employee of his duties that led to the finding of termination.
This may be an unusual case somewhat limited to its own facts, but it does highlight the dangers of these types of arrangements and the need to proceed carefully.