Ontario case looks at notice entitlement when fixed-term contract terminated early
A fixed term employment contract is an agreement between an employer and employee for a specific, or “fixed,” period of time. Often, employers will use this type of contract when hiring an employee for a limited purpose, such as a one-off project.
The benefit to the employer is that at the end of the fixed term, the relationship ends with no further liability to the employee. In other words, the employment relationship terminates without the need for any notice or severance.
However, what happens when the employer ends the relationship early? This scenario was before the court in Bouchard v. Facility Condition Assessment Portfolio Experts Ontario Ltd., 2024 BCSC 1870.
The worker is a registered professional engineer. Facility Condition Assessment Portfolio Experts Ontario (the company) provides engineering and management consulting services. The company was retained for a large project in British Columbia. The company and the worker agreed to work together pursuant to terms that were captured in three separate agreements – an Asset Purchase Agreement, an Employment Contract, and a Non-Solicitation and Confidentiality Agreement.
The Asset Purchase Agreement contained the following three-year consulting clause: “The principal of the Vendor, [the worker] agrees to enter into an employment contract which shall be for no less than 3 years on terms agreeable to both the parties based on the existing employment of [the worker] by the Vendor. Any probationary periods for [the worker] shall be waived.
The Employment Contract contained the following important clauses:
“Any conditions included in the Share Purchase Agreement between [the worker] and [the company] will supersede any related/relevant clause within this agreement.
[The company] may terminate your employment at any time for cause.
[The company] may terminate your employment without cause at any time by providing you with notice, or pay in lieu of such notice, and any severance pay required by the Employment Standards Act.
In the event a temporary layoff is ever required, it may be implemented in accordance with the requirements of the Employment Standards Act.”
The relationship suffered an irreparable breakdown and the worker’s employment was terminated without cause. He commenced litigation for wrongful dismissal, arguing that he was subject to a three-year fixed-term contract and, as a result of the termination, was entitled to the balance (roughly 14 months remained).
The issue before the court was whether a three-year fixed term of employment existed and, if it did, whether the worker was entitled to the balance of the fixed term.
The court found that the worker was employed for a three-year fixed-term period. The court found that there was a conflict between the Asset Purchase Agreement (which provided for a three-year employment period) and the Employment Agreement (which provided that the worker’s employment could be terminated according to the provincial employment standards legislation).
Given this conflict, the court relied on the Asset Purchase Agreement, which stated that in the event of a conflict between the Asset Purchase Agreement and the Employment Contract, the Asset Purchase Agreement would govern. This allowed the court to find a three-year fixed term employment contract.
The next step was to determine if the worker was entitled to the balance owing on the term. Fixed-term contracts may be subject to an early termination clause, but the clause must be unambiguous. In the worker’s case, the court found that the three-year employment period in the Asset Purchase Agreement superseded the Employment Contract clause that allowed for termination without cause with notice or pay in lieu.
The court also found that, while the termination clause was not ambiguous, it did lack the specificity required in order to be enforceable. As a result, the worker was awarded 14 months’ severance.
We generally advise employer clients to avoid fixed-term contracts because the risks are too high. An indefinite-period employment contract with a solid termination clause is usually sufficient to mitigate risk.
Trevor Thomas is a partner and co-founder of Ascent Employment Law in Vancouver.
