What Happens When an Employee Works Past the Contract’s End Date?

Written by David Doorey, York University

I was asked this weekend about a hypothetical employment situation. Let’s call the employee in this story Mark.  It’s a good scenario for a law school question.

Facts

Last April, Mark was hired to work for Company A.  A written employment contract in the form of an offer letter was written up by the employer and signed by Mark.  The contract was dated April 6, 2015 and indicated a start date of April 7.  The contract is short, less than one page long, and it specifies a salary, inclusion in the company’s benefit plan and a company vehicle.  The ‘Re” line of offer letter states “6 Month Offer of Employment”, and that is the only reference to the contract being for a fixed term.

Mark started employment on April 7 as a financial professional in charge of coordinating a new project.  Mark is a former CFO and executive and this new position with Company A came with considerable responsibility and a reporting relationship directly to senior executives.  Assuming this was a 6 month fixed term contract, that 6 months came and went.  Mark continued to work into December.  On December 7, 8 months to the date after the start of his ‘6 month contract’, the employer gave Mark a letter that stated:

“We have decided not to extend your six month contract any further and accordingly this is to advise you that your employment is being terminated effective December 7, 2015”.

The employer claimed that its only legal obligation was to provide Mark with one week’s notice “in accordance with the Employment Standards Act”, and it paid him one week’s pay plus accrued vacation pay.

Law Question:   Is the Employer correct in asserting that its only legal obligation to Mark is to comply with the minimum amount of notice required in the Employment Standards Act?

This question raises the issue of what happens when a fixed term contract extends beyond the fixed term by agreement of the parties.  I’m assuming that this was a fixed term 6 month contract, although even that is questionable.  The only reference to the contract being fixed term is found in the ‘re’ line of the offer letter, and even that is not without ambiguity.  Is a ‘6 month offer of employment’ the same thing as an offer to employ for a 6 month period?  Mark claims that throughout, the employer asserted that there was a good chance that the contract would continue  beyond 6 months and also that the employer actually made a verbal assurance in the fall that the contract was being extended an additional 6 months.  Courts require clauses specifying that an employment contract is for a fixed term to be crystal clear (unambiguous), and this contract could very well not meet that high standard.  The contract may have been for an indefinite term from the start.

It matters greatly whether the contract is for a fixed term or for an indefinite term.  If the contract is for a fixed 6 month term, then at the end of the 6 months, the contract would simply end and the employer would not be required to provide any notice to Mark.  However, if the contract is for an indefinite term, then the employer could only terminate Mark if it first provides him with “reasonable notice”.  The employer here wants this to be a fixed term contract in order to avoid having to give Mark “reasonable notice”.

If we assume that this contract began as a 6 month fixed term contract, that contract would have ended on October 7.  Mark claims that prior to that date, a verbal offer was made by the employer to extend the employment an additional 6 months.  The employer denies that happened, so a court would need to sort out that factual dispute.  If the court accepted Mark’s claim that an verbal offer was offered and accepted to extend the contract an additional 6 months, to April 7, 2016, then the employer could be on the hook for an additional 4 months’ pay.
What is not in doubt is that in fact the contract did not end after 6 months.  Mark just kept working according to  all the same terms and conditions.  That key fact supports the argument that this was not in fact a 6 month fixed contract at all.

After October 7, Mark was no longer working pursuant to a 6 month contract that began in April.  He was employed pursuant to an indefinite term employment contact.

As far back as 1926, the Ontario Court of Appeal ruled that once a fixed term contract is extended with consent of the parties the contract becomes one of an indefinite term that can only be terminated with ‘reasonable notice’. [See Messer v. Barrett].  More recently, an Alberta court in Duxbury v. Training Inc. confirmed this interpretation:

If after the specified term of the contract the parties continue their employment relationship, then despite the specified term, the contract may be thereafter seen as one of indefinite duration, which is subject to termination by either side upon reasonable notice.  (Hague v. St. Boniface Hospital, [1936] 2 WWR 230, Man.K.B.)

The employer appears to be under the mistaken impression that once the 6 months expired, that it could just unilaterally decide each day whether to extend the contract for another day or not.  Once an employee works beyond the end date of a fixed term contract, and no new fixed contract is entered into, then the employee can only be terminated with ‘reasonable notice’.

Reasonable Notice

What amounts to ‘reasonable notice’ for Mark is up to a court, but it is certainly much longer than 1 week.  Applying the ‘Bardal factors’, a court would decide how much notice is reasonable for a professional employee who reported directly to the senior officials of the company with 9 months’ service.

To give you an idea of the amount of notice a court might order, try the fun “Severance Pay Calculator App” developed by the Toronto law firm Samfiru Tumarkin.  I entered into the app the following information: less than one year’s service; Mark’s age of between 51-60; and “professional” as the job type.  The App concludes that a court would order between 3 to 6 months reasonable notice.  As you can see, that’s a lot more than the measly one week the employer gave Mark.  During that period, Mark would also be covered by the benefits plan.

Issues for Discussion

1.  Do you agree with the analysis in this blog entry that the employer is required to provide Mark with “reasonable notice” of termination?

2.  If the employer wanted to extend the contract beyond 6  months, but without inheriting the requirement to provide ‘reasonable notice’ of termination, how could it have done so?

David Doorey, “What Happens When an Employee Works Past the Contract’s End Date?” Law of Work Blog (January 17, 2016): https://lawofwork.ca/workingpastcontractdate/‎(opens in a new tab)