Perilous fixed-term contracts, The Law Times (May 8, 2017 at p 7)

06 May Perilous fixed-term contracts, The Law Times (May 8, 2017 at p 7)

PERILOUS FIXED-TERM CONTRACTS
By Nikolay Y. Chsherbinin

In the domain of employment law, a fundamental common law principle is that a contract of employment for an indefinite period is terminable only if reasonable notice is given. This principle does not apply to fixed-term contracts. At the conclusion of a fixed-term contract, employees are not dismissed; rather, their employment ceases in accordance with the terms of the contract.

A subtle legal question of whether employees forfeit their entitlements under a fixed-term contract arises when their employment continues beyond the contractual expiry date. In Roberts v. ZoomerMedia Limited, 2017 ONCA 327, the Ontario Court of Appeal upheld the lower court’s decision that, inter alia, concluded that continuation of employment under a common law regime does not discharge an employer’s obligation under a fixed-term contract. The court also rejected the employer’s argument that the termination clause was void for contravening the Employment Standards Act, 2000 (“ESA”).

In Roberts, Bill Roberts served as the president and CEO of a charity, S-Vox Trust, which owned and operated a speciality television station called Vision TV. In 2007, Roberts signed an employment agreement with S-Vox for a fixed term, ending on Oct. 31, 2011. The agreement provided that on the expiry of its term, Roberts would be entitled to a lump-sum severance payment, equivalent to a two-year salary and a six-month paid sabbatical leave. On June 11, 2009, the employment agreement was amended, but Roberts’ entitlements remained intact. On June 15, 2009, ZoomerMedia entered into an agreement to purchase the Vision TV business.

In the Vision TV purchase agreement, ZoomerMedia agreed to an assignment of Roberts’ employment agreement and to continue his employment “on terms which will be no less favourable.” As the expiry of Roberts’ employment agreement drew near, there were frequent, but unsuccessful, attempts to renegotiate it.

On October 31, 2011, Roberts’ employment agreement expired, but his employment with ZoomerMedia continued after that date as a common law relationship.

On March 1, 2012, ZoomerMedia gave notice that it was terminating Roberts’ employment effective Oct. 31, 2012. ZoomerMedia took the position that the common law relationship discharged Roberts’ entitlements under the employment agreement and provided him with an eight-month working notice and a two-month severance package.

Roberts disagreed and launched a wrongful dismissal action against ZoomerMedia. His action was adjudicated by way of a summary judgment motion, where Justice Paul Perell found ZoomerMedia liable to pay $640,000 in damages for the two-year severance payment ($490,000) and for payment in lieu of the sabbatical ($150,000).

In coming to his decision, Perell explained that when, on Oct. 31, 2011, Roberts’ employment agreement ended, his contractual entitlements crystalized. Having found that there was no novation, Perell concluded that, after Oct. 31, 2011, the common law governed the parties’ post-expiry relationship, but it did not discharge ZoomerMedia of its obligations, which it assumed under the fixed-term agreement.

On appeal, ZoomerMedia argued Perell erred by not giving effect to its argument that the clause — contained within the broad termination provision — that provides entitlements in the event of early termination without cause is void because it contravenes s. 61(1) of the ESA by expressly excluding entitlement to short-term and long-term disability during the statutory notice period.

Effectively, ZoomerMedia argued that because it did not agree to provide Roberts with all of his statutory entitlements, the termination provision must be invalid in its entirety and Roberts must forfeit his entitlement to the contractual two-year severance payment, valued at $490,000.

The ONCA rejected ZoomerMedia’s argument because, in its view, it would be a perverse application of the ESA, which is designed to protect the interests of employees.

Next, ZoomerMedia argued that Perell erred in not finding that Roberts waived his entitlement to a sabbatical because, over the course of the pre-existing negotiations to extend Roberts’ employment agreement, the parties purportedly reached an agreement that he would forgo his entitlement to the sabbatical.

The ONCA rejected this argument, stating that Roberts may have been willing, in the course of negotiations, toward a new employment contract to forgo his sabbatical, but ZoomerMedia cannot convert a provisional bargaining position into a valid waiver. On this issue, Perell opined that Roberts was a testimonial to the virtue of the parol evidence.

The pivotal point in this case centres on the effect of the fixed-term agreement on the calculation of Roberts’ entitlements. Despite the fact that the term underlying the fixed agreement expired and the parties continued with their employment relationship beyond the expiry date, they were still bound by that agreement. However, because the parties did not agree to a new term or any new provisions, the key provisions, such as the position and compensation, remained the same. Because there has been no consensus between the parties as to what the term may be going forward, it became a term of indefinite hire, subject to dismissal on reasonable notice.

Fixed-term contracts of employment are legal, and where their terms are clear, they will be enforced. The courts require unequivocal and explicit language to establish such a contract, and they will interpret any ambiguity, as Roberts illustrates, strictly against employers’ interests. Where the parties to an employment agreement fix the entitlements upon termination, those entitlements are treated as a contractual entitlement for which mitigation is not required.

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