As the use of temporary workers is increasing, employers must be mindful of one common mistake that may result in significant liability – creating fixed-term contracts (intentionally or unintentionally) without early termination provisions.
Depending on the work-related need, temporary workers may be hired for both fixed (advanced agreement as to end date) and indefinite (no agreement as to end date) periods. In most circumstances, there is a presumption of indefinite employment absent contractual terms to the contrary.
In some cases, employers deliberately institute fixed-term agreements to contract out of the above presumption. In other cases, employers unintentionally make pre-contractual representations that lure employees into believing their employment is secure for a fixed period. In both cases, where the governing employment agreement lacks an early termination provision, employers will face a sticky situation if they wish to end the relationship early.
That sticky situation was recently addressed in Ballim v. Bausch & Lomb Canada Inc., 2016 ONSC 6307 (“Ballim”). In that case, Ms. Ballim was temporarily hired to replace an employee on a maternity leave. Following a series of interviews, the employer sent Ms. Ballim an email attaching an employment agreement. Although the employment agreement was silent on the actual duration of employment, the body of the email stipulated that the agreement was a “one year contract”.
Three months into the contract, Ms. Ballim’s employment was terminated without cause, and the employer offered her a termination package which slightly exceeded her statutory minimums. Shortly thereafter, Ms. Ballim secured alternative employment at a higher compensation rate. Notwithstanding her re-employment, relying on the decision in Howard v. Benson Group Inc., 2016 ONCA 256 (“Howard”), Ms. Ballim brought a motion for summary judgment seeking compensation for her lost wages up to the end date of the fixed-term contract.
In response, the employer argued that Ms. Ballim was not subject to a fixed-term contract with a definitive end date, but was rather subject to an indefinite term agreement, which had been lawfully terminated without just cause. The employer further argued that any additional losses at common law had been mitigated as a result of Ms. Ballim’s re-employment.
The Court found that the e-mail referencing the one-year term was inextricably tied to the employment relationship, and together with certain terms in the employment agreement, created a binding one year contract of employment. Noting that the employment agreement did not contain an early termination provision, the Court held that the employer was stuck owing Ms. Ballim the balance of the one-year contract without deduction for mitigation earnings.
Ballim offers two important lessons to employers looking to hire temporary workers:
- If the employment is intended to be of indefinite length (subject to either a contractual termination provision or common law termination entitlements), employers should refrain from making any representations, whether written or verbal, to the contrary. Otherwise, such representations may later have unintended consequences even in the presence of contractual entire agreement clauses (see Singh v. Trump, 2016 ONCA 747).
- Fixed-term employment contracts should always include an early termination provision. In Benson, our Court of Appeal recognized that parties to a fixed-term employment contract can expressly provide for early termination and specify a fixed term of notice or payment in lieu thereof.