Fixed Or Indefinite: Determining The Duration Of An Employment Contract
August 16, 2018
When an employee enters a fixed-term employment contract, it is understood that their employment relationship has an end date. Of course, a fixed-term employment contract can be extended when it reaches its contractual conclusion. But what about when an employee is terminated before the agreed upon end date of the contract? Do they have any rights to damages? And what about when the employer and the employee have different understandings as to the duration of the contract? This was a question recently put before the Ontario Superior Court of Justice.
A contract is signed, and the employee is later terminated
The Plaintiff was hired by the employer to serve as Vice-President, Project Capital and Financing on May 11, 2015, and signed a second offer for employment with them on October 29, 2015. The offer’s terms outlined his base salary of $166,000 USD, his bonus structure ($155,000 USD per completed project), and 1% of all liquidity and investment in the employer’s enterprises that have been developed solely through the Plaintiff’s efforts. Additionally, the contract was to “time out in 3 years and the goals will be reset.”
The employee was dismissed without cause on March 10, 2017, with ten months remaining on his contract.
There were two main issues at trial. The first was whether the employer’s contract was of a fixed-term. The second was if the contract was not fixed-term, what amount of reasonable notice would be owed to the employee?
Was the contract fixed-term?
Neither the employer nor the employee sought legal advice about the contract, the language of which the court pointed out was “far from ideal.” When the contract states “this agreement will time out in 3 years and goals will be reset” there is no mention of whether the agreement is of fixed or indefinite term.
The employee’s position was that he believed the contract was of fixed-term and that at the end of three years there would be no ongoing obligations. The employee relied on the doctrine of contra proferentem, which means that any ambiguity in a contract must be interpreted against the party who drafted it.
Meanwhile, the employer’s lawyer argued the “time out” that is mentioned was simply a timeline to assess business-related goals, and not one that would conclude the employment relationship. The employer presented case law which supported their position that for an employment contract to be for a fixed-term, the language outlining that must be unequivocal or explicit. However, in those cases, it was the employers who argued that a contract was fixed-term rather than the employees.
The court looked the contract as a whole, looking for ambiguity, and not finding any. The court found that nothing in the agreement suggested that at the end of three years the employment relationship would be over. Instead, the notion of a time out implies there will “be a pause or a short amount of time when an activity will stop but then resume.” The court wrote “It would be wrong to use a possible lack of clarity in the term ‘timeout’ to ignore well-established jurisprudence that in order to find the existence of a fixed-term employment, the language must be unequivocal and explicit.”
What is the appropriate period of notice?
Having determined that the employment relationship was of an indefinite term, the court turned to the issue of appropriate notice. If the agreement had been one of fixed-term, the employee would have been entitled to damages equal to the time remaining on the contract (10 months). However, since it was found to be an indefinite agreement, the court turned instead to common law notice. The judge considered the employee’s tenure (23 months), age (53), the lack of comparable employment available to him, and his position as a highly-paid employee. As a result he was awarded eight months of notice of termination.
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