Fixed Term Contracts May Require a Second Look

Fixed term employment contracts are a practical management tool for various reasons including the completion of short term projects or replacement of a permanent employee on leave.  However, employers often use successive fixed term agreements for another reason – to avoid notice or severance obligations upon termination of employment.   Such misuse can have significant impacts on employees.  For example, indefinite term employees are entitled to statutory notice of termination and, in the absence of express language, reasonable notice at common law.  Fixed term contracts end at the conclusion of the specified term with no notice required.

Where an employee works for several years under a series of “purported” fixed term contracts, courts and arbitrators have dug beneath the surface of the contract language to uncover the reality of the employment relationship.  A recent arbitration decision in Gibson-Peron v. Berens River First Nation, [2014] C.L.A.D. No. 195 serves as an example of the analysis undertaken to determine the true employment terms despite express contractual language to the contrary.

Teresa Gibson-Peron (“Ms. Gibson”) worked as a nurse for the Berens River First Nation (the “Band”) for almost four years.   During this time she entered into a series of employment contracts that varied in duration – the longest being eleven months.  There was also a period of almost a year, however, where Ms. Gibson was not under contract but continued to work under the same terms and conditions as provided for in her previous contract.

Ultimately, Ms. Gibson’s contract was not renewed following a death of a patient.  The Band stated that performance was not a consideration in the decision; rather her contract simply expired and was not renewed.  Clause 1.0 of the initial contract stated the following (each successive contract contained the identical clause with changes to the dates):

The Employer agrees to employ the Employee, and the Employee agrees to work for the Employer as a Clinic Nurse for a definite period of time commencing December 19, 2009 and ending March 31, 2010.

It was determined that the Band was a federally regulated employer and thus fell within the jurisdiction of the Canada Labour Code (the “Code”).   Ms. Gibson argued that she was an indefinite term, or “permanent” employee of the Band.  She said it was a “mere formality” that she signed a new contract each year and that, as long as she continued to perform her job well she could work with the Band indefinitely.  Under s. 242 of the Code, she argued that she was “unjustly dismissed” and sought damages for lost wages and benefits.

The arbitrator referred to the Ontario Court of Appeal’s decision in Ceccol v. Ontario Gymnastic Federation (Ceccol), as one of the leading cases on the issue of how to approach a situation in which an employee and an employer have entered into a series of purportedly fixed-term contracts over a period of years.  The arbitrator emphasized the public policy concerns raised when an employer mischaracterizes the reality of the employment relationship.

Upon reviewing the evidence, the arbitrator concluded that Ms. Gibson was an indefinite term employee based on the expressed or implied actions and statements of the Band over the years.  Some of the following evidence was determinative in reaching this conclusion:

• The terms of the contracts were essentially word-for-word identical from one year to the next.
• The nurses worked without a contract for periods of time (for more than one year at one point), but continued working on the same terms.
• The Band provided a pension, benefits plans, and ongoing training for its nurses.
• Ms. Gibson honestly believed Clause 1.0 was a formality and that it didn’t alter the basic nature of her employment.
• Ms. Gibson honestly and reasonably believed her contract would be renewed every year subject to performance issues.

Lessons for Employers

An indefinite term of employment disguised as successive terms of fixed term employment may not be effective in avoiding legal obligations regarding notice or severance for termination of employment.   In this case, Ms. Gibson was covered under the Canada Labour Code, which provides for a range of remedies upon unjust dismissal.  Generally under most provincial legislation, Ms. Gibson’s recourse would have been to sue for wrongful dismissal.

If parties clearly do not intend to create an indefinite term employment relationship, there should be no issues with enforcement.  To avoid ambiguity, the contract should state that the relationship will end at the conclusion of the term and outline terms of renewal, if appropriate.  Most importantly, an employer’s actions must correspond with the contract language.  Statements or actions which suggest that the fixed term is a mere formality must be avoided.

Finally, if it is concluded that fixed term contract is inappropriate based on the context of the employment relationship, employers can expressly limit the notice required in terminating an indefinite employee in the employment contract.  Notice provisions are enforceable provided they are reasonable in the circumstances and do not fall below statutory minimums.