Whether an employment agreement is a ﬁxed term contract, valid for a predetermined period, or an indeterminate term contract, valid until terminated otherwise than under its terms, has substantial signiﬁcance.
The Quebec Court of Appeal recently shed new light on the criteria under which both types of contracts can be distinguished. Theodore Goloﬀ discusses that case.
In Quebec, while employment for an indeterminate term can be severed by the employer without cause but with notice, whether common law or statutory (and/or severance, where same applies), cancellation of a ﬁxed term contract generally gives employees the right to claim the full value of the remaining porti on of the contract.
How the issue arose
Commission des normes du travail c. IEC Holden inc. is a case involving an employer whose business usually had ups and downs. To maintain the ﬂexibility required to achieve “just-in-time” delivery of its products, the employer entered into ﬁxed term contracts with its employees. The employment contracts involved were each stated to be of ﬁxed duration. Each made reference to possible new and future contracts.
In 2009, facing decreased demand for its products, it eﬀected a collective dismissal. Several employees had thus worked continuously for the employer for a number of years, but always under ﬁxed term employment contracts.
If what was involved were, truly and simply, a succession of ﬁxed term contracts, no statutory notice pay was due, since the relevant provisions of the Quebec Labour Standards Act (the “LSA”) do not apply to ﬁxed term contracts (s. 82.1).
However, if the relationship between the parties was in essence an indeterminate term agreement, the employer owed its employees more than $100,000 under the LSA.
At issue was the impact of s. 1 of the LSA, under which “‘uninterrupted service’ means […] the period during which ﬁxed term contracts succeed one another without an interruption that would, in the circumstances, give cause to conclude that the contract was not renewed.” The notice of termination is proportional to the duration of uninterrupted service for the employer.
The employer argued that this deﬁnition of “uninterrupted service” did not change the nature of the ﬁxed term contracts entered into with its employees.
The Quebec Court of Appeal held that, in determining which type of employment contract was involved, form simply would not trump the underlining reality of the employment relationship.
The Court determined that:
- Whether an employment contract is ﬁxed or indeﬁnite is a question of substance, not form;
- The true intent of the parties must be examined not only by the terms they may have used in the contract but also with reference to all the surrounding circumstances;
- Any ambiguities will be interpreted against the employer’s interests.
For the Court, the evidence taken as a whole was to the eﬀect that:
- At the time of hire, none of the employees were told that their employment would be for a ﬁxed term;
- Employees signed “ﬁxed term” contracts not at time of hire but at the end of their short training periods, which doubled as probationary periods;
- Though each of the contracts contained deﬁnite expiry dates, they contained an option for the employer to “layoﬀ” employees from ti me to time; in other words, the employer reserved the right to suspend the contract and its mutual obligations — in case of a temporary shortage of work, for instance. Such a provision is intrinsically incompatible with a ﬁxed term contract.
The Court of Appeal concluded that the parties were really bound by an indeterminate term contract, thereby giving the employees the beneﬁt of statutory notice.
Takeaway for employers
- Absolute clarity in terminology is essential but not suﬃcient to guarantee that the employment contract will be viewed as a ﬁxed term;
- The reality of the employment relationship, how it would begin and how it plays out in fact, can and will be taken into account by the courts where there is the slightest ambiguity or inconsistency.
- Reservati on by the employer of rights that inherently deﬁne indeﬁnite term contracts, in an allegedly ﬁxed term contract, such as the right to terminate with notice or the right to layoﬀ during the term, is deﬁnitely counterproductive.
Drafting an employment contract therefore remains a delicate endeavour.