We know that Courts do not encourage the use of repeated fixed term contracts in order for employers to avoid statutory and common law severance obligations. This is especially true for workers with multiple years of service. The Courts require unequivocal and explicit language in order to establish a series of enforceable fixed term contracts, and any ambiguities will typically be read against the employer. The Ontario Superior Court’s decision in Van Mensel v. Walpole Island First Nation (2010 ONSC 6463) provides insight into the circumstances in which a series of fixed term contracts will be upheld and emphasizes the importance of properly drafted contracts.
Ms. Van Mensel provided computer training to students on the Walpole Island First Nation (“Walpole”) for 11 years as an independent contractor pursuant to a series of fixed term contracts. Each contract ran from September until June of the following year. Every year, Ms. Van Mensel prepared a proposal, which included a fixed term, for Walpole to consider. The terms of the proposal were negotiated but the fixed term was not.
In 2008, Walpole decided to change Ms. Van Mensel’s position to one of a permanent nature and put it up for tender. Ms. Van Mensel argued that she was an employee and sued Walpole claiming that she was entitled to reasonable notice of termination.
Justice Little concluded that there was no ambiguity within the contract on which he could rely to conclude that Ms. Van Mensel was an employee. He based his findings on Ms. Van Mensel’s knowledge that she was not an employee and the fact that she had included a fixed term into the yearly proposals that she had submitted to Walpole. The intentions and expectations of the parties had been to reach a fixed term agreement for the duration of the following school year. This intention was further emphasized by the fact that Ms. Van Mensel was paid for the duration of the school year and was not paid over a 12 month period as were the employees of Walpole. Also, there was no inequality of bargaining power between the parties.
Justice Little also pointed to the fact that Ms. Van Mensel was uncertain as to whether her contract would be renewed each year and did not assume that she would be returning to work in the fall until she was advised to do so.
Furthermore, Walpole had a hiring policy in place which dictated that non-aboriginal individuals could only be hired on fixed term contracts and not as indefinite term employees. In accordance with this policy, Ms. Van Mensel could only be employed as an independent contractor pursuant to a fixed term contract.
Ms. Van Mensel was found to be an independent contractor pursuant to a series of fixed term contracts.
What does this mean for employers?
Hiring pursuant to a series of fixed term contracts can be done
- Although decisions such as Van Mensel are rare, courts may be willing to find that workers, even those with lengthy service, who have entered into a series of true fixed term agreements, are contractors as opposed to indefinite term employees. The key is in the underlying reality of the relationship. However, employers will not be able to avoid liability for statutory and common law severance simply by labeling an indefinite employee relationship as one of a fixed term.
- Courts may be more inclined to find that a series of fixed term contracts exist if the terms of the contract are re-negotiated each time a new contract is offered and if the employee is the party who proposes the fixed term.
Carefully drafted contracts remain important
- Courts will interpret any ambiguities in a contract against the interest of the drafting party – since this is usually the employer, this makes the employer more vulnerable to a finding of indefinite employment in these circumstances. This underscores the need for unambiguous and properly drafted employment contracts that reflect the intentions and expectations of the parties.
“I am mindful of the danger of repeated “fixed term” contracts, but in this case the underlying reality of the employment was that the parties specifically knew they were entering into successive, independent contractor, fixed term contracts.”
“Fairness in contracting has caused courts to seek out possible contract ambiguities in the employment contract so as to impose equity.”