How Not to End a Fixed-Term Employment Agreement

Typically, when an employer and employee agree to a fixed-term arrangement, the employee has no entitlement when the agreement expires.  In effect, no notice or payment in lieu of notice is required on the theory that the employee has effective notice of the end of the agreement from the start.  However, often parties will agree to the terms on which the contract may be terminated prior to its end date.  In one recent decision of the Alberta courts, an employer learned the hard way how not to end a temporary arrangement on the eve of its expiry.

In Thompson v Cardel Homes Limited Partnership, the employer had retained a senior executive on two consecutive, fixed-term contracts.  The first contract was for two years, and before its expiry the parties had agreed to a second one-year term.  In the latter agreement, the employee would receive no notice or severance upon expiry of the contract.  However, the agreement did provide that the employer would provide the employee with four (4) weeks' notice if the contract was to end early, and the employee was also entitled to receive a severance payment equivalent to twelve (12) months' salary.  One month prior to the end of the agreement, the employer advised the executive that his employment would not be extended and that he need not attend work for the remainder of the contract term.  He was also directed to return certain company assets (keys, key card, computer passwords) to the employer, and his boss took over his duties effective immediately.  The employer also told third parties that the employee was no longer with the company. The employee sued, claiming that he had been terminated early without cause and should receive the early termination payment described in his contract.

The trial judge concluded that the employer had not simply advised the employee of its intention to not renew the contract, but had taken active steps to immediately end the relationship without cause.  In the result, he was found to be entitled to the payment of 12 months' salary.  The employer appealed the decision, but was unsuccessful.  The Alberta Court of Appeal found that the employer had constructively dismissed the employee by not allowing him to attend the office or perform his duties, which were assumed by his manager, for the remaining term of the agreement. By asking the employee to return all company property in his possession, arrange to pick up his personal effects, and by assigning his functions to another employee of the company, the employer had made clear that the arrangement was at an immediate end.  In upholding the trial judge's decision, the Court of Appeal stated:

By not obtaining the employee’s agreement to a parting of the ways prior to the end of the contract, the employer denied the employee the opportunity to complete his tour of duty and all that that entails in an employment relationship. When no attempt is made by an employer to obtain an employee’s consent to early termination of a fixed-term contract, the employer risks a finding of termination. When there is evidence of a unilateral change in the terms of employment, the employer runs the risk of being found by a court to have terminated the employee without cause. These are the findings the trial judge made in this case. And those findings disclose no error. Nor are they unreasonable.

The Court's statement serves as good advice to other employers looking to bring a fixed-term agreement to an early end.  If the employer in this case had wanted to provide the departing executive with an opportunity to look for other work (as they argued), it would have been advisable to discuss that with the employee and reach a mutual agreement.  Having failed to do so, the employer was on the hook for the entirety of the early termination payment.

Do you have questions about fixed-term agreements or how to end them properly?  Feel free to contact Lance Ceaser for assistance.