The White Whale is Found: When Fixed-Term Goes Right

The recent Ontario decision, Steele v. The Corporation of the City of Barrie, 2022 ONSC 7245 (“Steele”), has expanded on the case law centering on fixed term employment contracts (“FTEC”), and outlined some principles which may help protect employers from liability.

It is common knowledge amongst employment lawyers that FTECs often come with significant liability risks for employers when drafted improperly. Without a valid early-termination provision, FTECs commonly lead to employers having to pay out the balance of the employment contract when they terminate an employee subject to said FTEC. Furthermore, if an employee governed by a FTEC works even a day past the end date in the FTEC, said employee will usually become an indefinite term employee at law and absorb the benefits of their entire length of service upon any subsequent termination.

Continuous Fixed-Term Employment Contracts

Another significant risk of FTECs is the all-too-common practice of extending an employment relationship via multiple successive FTECs. When employers extend FTECs multiple times, it often leads to the employees at issue being classified as indefinite term employees at law, due to such FTEC extensions regularly being rife with contractual ambiguities and procedural mistakes. Upon termination, such an employee would likely be entitled to notice of termination, or pay in lieu thereof, based on their cumulative length of service with the employer.

The Court of Appeal for Ontario, in Ceccol v. Ontario Gymnastic Federation, 2001 CanLII 8589 (ON CA) (“Ceccol”), has made it clear that where there are contractual ambiguities and/or clear intentions between an employer and an employee to create an indefinite term of employment, multiple successive FTECs will not protect the employer from significant liability if they decide to terminate the employee at issue. Such situations will commonly lead to the employee being entitled to wrongful dismissal damages based on their cumulative length of service with the employer.

Steele v. The Corporation of the City of Barrie

The decision in Steele helps to identify the limits of the Ceccol decision, and when an employer can successfully rely on multiple successive FTECs to terminate an employee without additional liabilities.

The employee in Steele was employed by the employer from June 4, 2014, until December 31, 2017, as a Manager of IT Planning & Portfolio. His initial FTEC was from June 5, 2014, to June 3, 2016, and included a clause which labeled the term of employment as “approximately 2 years.” The employee’s employment was extended four times: on May 4, 2016 to December 31, 2016; on November 12, 2016, to July 1, 2017; on June 21, 2017 to September 30, 2017; and, on October 5, 2017 to December 31, 2017.

The employer decided not to extend the employment relationship beyond December 31, 2017, effectively terminating the employee. The employee commenced a wrongful dismissal action based on the argument that they were an indefinite term employee, and thus, entitled to reasonable notice of termination, or pay in lieu thereof. The court in Steele ultimately decided that, despite poor drafting, there were no identifiable ambiguities in the initial FTEC nor its extensions, as each agreement labeled the employment as “temporary.” Therefore, the employee was not entitled to any damages.

The court also stated that if any ambiguities did exist in the FTEC’s terms and/or its extensions, the legal consequences of said ambiguities were albeit eliminated by the following:

1. The job posting, FTEC, and extensions were all labelled as temporary positions, with a defined “up to” end date;
2. Each extension was granted before the end of each previous term;
3. The extensions were not pre-determined in the initial FTEC nor in any subsequent extensions;
4. The employee’s evidence in support of an indefinite employment relationship was poor – unlike the facts of Ceccol.

Conclusion

I have my own thoughts as to whether this decision was correct and should survive appellate scrutiny. Notwithstanding such thoughts, Steele currently stands for the important precedent that employers can use FTECs successfully to limit their liability upon terminating employment relationships, if they use such FTECs properly.

If you are an employee subject to successive FTECs who has been terminated, or an employer who is thinking about using such contracts within their business model, it is crucial to contact qualified employment counsel to guide you in the nuanced and important considerations outlined above.

This blog post was written by Filip Szadurski, a member of our Employment Law, Environmental Law and Commercial Litigation teams.  He can be reached at 613-369-0382 or at filip.szadurski@mannlawyers.com.