Canada: But We Had A Contract! Distinguishing Appearance From Reality In Employment Contracts

Last Updated: August 4 2014
Article by Melissa Gaul and André Giroux

On May 16, 2014, in Atwater Badminton and Squash Club Inc. v. Morgan ("Atwater"), the Québec Court of Appeal affirmed that the conduct of parties to an employment contract can supersede a series of fixed-term contracts, rendering the contractual relationship one of indeterminate term.

Background of Atwater  Case

Brendon Morgan, a highly qualified badminton instructor, had held the position of "Badminton Pro" at the Atwater Badminton and Squash Club for a period of 17 years.

Morgan had concluded a succession of fixed-term contracts with the club from 1993 to 2010. The contracts ranged in length from nine months to three years. However, from September 1998 to August 2002, Morgan was employed by the club without a written contract.

In 2002, the club was acquired by one of its long-term members. Morgan continued on as Badminton Pro, signing a series of one- to three-year contracts until he was informed on June 1, 2010 that his contract would not be renewed beyond August 31, 2010, the termination date set out in his latest contract.

Nature of Employment Relationship Considered by Superior Court of Québec

Morgan sought an indemnity equivalent to 21 months' prior notice of termination. He argued that the circumstances of his employment and the conduct of the parties constituted a contract of indeterminate term and that the Club was therefore required to provide him with "reasonable notice" of termination pursuant to article 2091 of the Civil Code of Québec.

The Club argued that Morgan's contract was clearly time-limited and as such they were not obligated to provide prior notice of termination.

The Superior Court noted that, generally, a contract with a fixed term should be respected by the courts. However, in this case, the Court was compelled to depart from the general approach given the nature of Morgan's employment relationship with the Club. In particular, the Court emphasized,

"the reality of Mr. Morgan's employment...and the reasonable expectations of the parties in the context of the employment relationship lead to the conclusion that he was under a contract for an indeterminate term. The successive renewals of...fixed term employment contracts over the years indeed transformed his employment contract into one with an indeterminate term."

Moreover, the contract renewal discussions tended to be brief and informal. In addition, they were not always held before the expiry of the latest contract. Morgan typically continued to come to work following the end date of his contract, and the continuation of Morgan's employment was "never an issue." The Court concluded that, "[g]iven the important role of a badminton professional in a badminton club, [the parties]...could reasonably assume that the relationship would continue beyond the formal term, except if [Morgan]...was explicitly and clearly informed otherwise."

The Superior Court therefore determined that Morgan was entitled to reasonable notice. It granted the equivalent of 21 months' notice given Morgan's age (47 years old), his length of employment at the Club (17 years), and the limited job opportunities available for his narrow skill set.

Québec Court of Appeal Upholds Superior Court Decision

The Club appealed the decision. It argued that the judge had erred in concluding that the employer-employee relationship had transformed over the years.

The Court disagreed and referred to various doctrinal sources that support the concept that an uninterrupted succession of fixed-term contracts can result in a contractual relationship of indeterminate term. In such cases, the Court held, the tribunal is justified in determining the intention of the parties by examining all of the relevant circumstances, including the conduct of the parties.

The Club then argued that the 21-month notice period was significantly exaggerated given the circumstances of the case. The Court dismissed this point and upheld the notice period granted by the Superior Court. It did, however, reduce the indemnity from $122,091.83 to $110,581.41 in order to take into account the salary gained by Morgan during the notice period.

Fixed-Term Contracts: What Employers Should Remember

In light of this decision, employers should be mindful of the manner in which they renew fixed-term contracts and in which they conduct themselves with regard to employees. Although the contract itself may provide for a termination date, the actual conduct of the parties may be taken into account in determining whether the employee is entitled to reasonable notice. The nature of the contract renewal discussions and whether or not the employee worked after the expiry of their contract are important factors that can influence the characterization of the employment relationship.

This decision also demonstrates the deference that will be shown by courts in deciding whether the notice period granted by the judge at first instance was indeed "reasonable." Courts will be reluctant to intervene, even if the award is generous.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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