Oral or Verbal Contracts

It is often forgotten that an employment contract exists even in the absence of a written document. A verbal or oral agreement contains the terms applicable to the relationship between the parties as developed through conduct and history. Moreover, implied terms developed from common law also apply to the relationship, i.e. reasonable notice of termination or pay in lieu thereof, the employee’s duty of fidelity, etc.

Written Contracts

Indefinite Contract

Most employment agreements are contracts of indefinite duration. That is, they evidence a relationship between the parties in which the employee will continue to be employed until the employee resigns from his/her employment, the contract comes to a conclusion through frustration or the employer terminates the employee’s employment in accordance with its legal obligations. Contracts of indefinite duration can include various types of employment relationships – full-time or part-time.

Definite or Term Contracts

In certain cases, employers may wish to hire employees on different terms. For example, an employer may need to hire for a short-term project or there may be a need for hiring during a particularly busy time for the business. Another example is where there is seasonal work. In such cases, employers may decide to offer employment on a definite or term basis.

A term contract is a contract for a defined term with a defined end date. Often a term contract will provide for termination before the end of the term, and, so long as it complies with any relevant employment standards legislation, the contract can be terminated earlier by complying with the provisions of the applicable statute. Otherwise, if the contract is terminated before its term ends, there are two possible outcomes, which may or may not require the employer to pay out the contract to the end of the term. In one scenario, any payment by the employer to the end date is subject to the employee’s duty to mitigate, and in the other case, there is no such duty. The scenario that applies depends on the terms of the contract itself. It is clear, however, that unless specifically stated, the mitigation requirement will not be read into the agreement.

The more difficult issues arise when employers renew term contracts, resulting in a series of successive term contracts. Employment standards statutes often have something to say about this. For example, Section 8(2) of Regulation 288/01 under the Ontario Employment Standards Act, 2000 (the “Act”) provides that employment periods separated by less than 13 weeks are deemed to be continuous for purposes of calculating termination entitlements under the Act. In other words, if the employment of one term is followed by another that commences less than 13 weeks after the first term ends, the employment period is deemed to have been continuous for the purpose of termination notice under the Act.

At common law, courts will also review the commercial reality of the arrangement and assess whether what exists is actually a term or definite contract or a contract of indefinite duration.

A recent Quebec decision has followed the example set in many common law courts and found that, in many cases, a series of term contracts, one following the other, creates a long term common law contract deserving of reasonable notice or pay in lieu thereof. In several recent cases, courts have indicated that a series of such term contracts, one following the other, can, but will not necessarily, result in such a finding.

Some of the relevant factors for this determination include:

  1. Were Records of Employment (“ROEs”) provided at the end of each term?
  1. If ROEs were provided, and if there was a period of non-employment between terms, did the employee apply for and/or receive employment insurance benefits between terms?
  1. Were there any real negotiations prior to entering into each fresh term?
  1. Did the employee have any obligation to give notice that he or she would not be available for any successor term, or was no such notice required?
  1. Did the employer have any obligation, express or implied, to give notice that there would be no successor term available, or was it understood that further employment might or might not be available? Did the issue of availability relate to circumstances over which the employer had little or no control?
  1. Are there external factors which influence the need for short term contracts and that change from time to time? Can the employer show that this need has altered the numbers and types of employees hired? Are the employees hired aware that they are hired to fulfill a need that can change and that is the reason for the term employment?
  1. Any other factor relevant - including verbal assurances that may have been given without authority.

A long series of term contracts with no hiatus and with no real change in duties from one to the other may create a presumption of long-term, continuous employment that will be hard to refute. It is essential that the intention with respect to the employment relationship is known and reflects the actual business relationship between the parties.