October 15, 2003 by Israel Foulon LLP
Question: Is there a maximum length of time an employment contract can be for? Can an employment contract be for life?
Answer: In order to answer this question it is important to understand the distinction between a fixed-term contract of employment and an indefinite-term contract of employment. A fixed-term contract is one that terminates automatically after the expiry of a fixed-term or upon completion of a defined project. Thus, the term of a fixed-term contract could be for the life of the employee.
This is in contrast to an indefinite-term contract of employment, which is for an indefinite period of time, but which can be terminated by either party by providing reasonable notice of termination. If a specific term of employment is not stated in an employment contract, it is assumed that it is for an indefinite term.
In Ontario section two of the Employers and Employees Act limits the term of employment contracts, both fixed and indefinite term, to a maximum period of nine years. But this limitation period can be waived under section 11(2) of the act in the case of an employee who is a manager, officer or superintendent. Furthermore the courts have held in Ontario that a contract of employment for a term of longer than nine years will still be enforceable for its full term if it provides for termination of the contract before the end of the nine-year period
While it is possible to have a fixed-term contract for the life of an employee, the courts have held that such an agreement requires clear and unequivocal language to be binding. The reason for this is the profound financial responsibility of an employer for guaranteeing lifetime employment.
In the case of a fixed-term contract of employment, the employee is not entitled to reasonable notice of termination if the contract ends after the expiry of the fixed term. The employee is only entitled to recover damages if the employer terminates the employment relationship before the term expires. The damages in such circumstances are equivalent to the wages and benefits the employee would have earned over the balance of the term, subject to the employee’s duty to mitigate her losses by seeking suitable alternative employment. Therefore, in the case of a fixed-term contract for life, the damages would be equivalent to lost wages for the life of the employee subject to mitigation. This is in contrast to termination of an employment relationship for an indefinite term, which would only entitle the employee to damages equivalent to a period of reasonable notice (generally the maximum period of reasonable notice is two years).
In Foreman v. 818329 Ontario Limited [2003] O.J. No. 3327, the Ontario Court of Appeal ruled on how a contract that stipulated the employee could not be dismissed, should be interpreted. The issue before the court was whether a contract that stated that the employee shall not be dismissed should be found to be a fixed-term contract for life.
The court stated that in order for a fixed-term contract to be effective, the terms of the contract must be clear and explicit. In the absence of such clarity, any ambiguity will be held against the party seeking to enforce a contract for life. Stating that the employee shall not be dismissed did not constitute clear and unequivocal language that employment was for life or until retirement. Thus while contracts for life can be enforceable, they will require clearer articulation because of the financial consequences which flow from such an agreement. (For more information on this case, see page 3112 of CELT # 398.)
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@qtw38575.mywhc.ca. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today