Employee Unable to Establish Entitlement Based on Purported 5-Year Contract

Where an employee is retained for a fixed-term and is dismissed prior to the expiry of the contract, the employer may be liable for any compensation and benefits that the employee would have been entitled to for the remaining term (subject to a provision setting describing the parties' rights and obligations in the event of an early termination).  However, what happens when there is disagreement between the parties about the existence of a fixed-term contract?  The Ontario Superior Court of Justice recently wrestled with this very issue.

In Tossonian v. Cynphany Diamonds Inc., the plaintiff alleged that the employer had 'guaranteed' him employment for 5 years as part of their contractual arrangement.  The plaintiff was working for a jewellery store in British Columbia, but was interested in a position in the Toronto area.  He had discussions with the owner of Cynphany Diamonds (which operated as Symphony Diamonds) about a position managing two of the company's stores.  The parties had two conversations on the terms and conditions under which the plaintiff would be employed.  Following the second conversation, the plaintiff wrote to his potential employer, setting out what he expected in his contract.  His email message included reference to a fixed, 5-year term, as well as compensation, bonus and moving expenses in line with their earlier conversation.  When the owner of Symphony Diamonds replied to the plaintiff a few days later, his email made no reference to a 'guarantee' or a fixed-term.  The plaintiff did not object, although he alleged that the parties had a subsequent conversation during which he claimed that the employer told him that it was "not a problem.  I will guarantee you."

The plaintiff commenced working for the defendant company, and a couple of months later the contract was reduced to writing.  The initial "Employment Contract" set out the terms of employment, but did not make mention of a fixed term.  Subsequently, the employer did sign two letters that the plaintiff provided, which included a 5-year term, but the owner explained that both of these documents were provided solely to assist the plaintiff in obtaining a mortgage for a property in the Toronto area.  There was also evidence that the employer confirmed this information on a call with a representative of the bank that offered the plaintiff a mortgage.

Only a few months later, there was a dispute between the parties surrounding the plaintiff's decision to take employment with a competitor.  While the employer alleged that the plaintiff had resigned his employment with Symphony, the plaintiff claimed that he was dismissed when the employer learned that he had been negotiating with the competitor, and suspected that the plaintiff was also encouraging other employees to leave the employer. 

The Court concluded that the owner had, in fact, terminated the employment of the plaintiff, after only 8 months, so the primary issue was whether or not the plaintiff was working on a 5-year contract, or had been hired indefinitely (and was entitled to "reasonable notice" at common law).  The Court considered the case law that analyzed when a contract was formed.  In the Court's opinion, the plaintiff's contract of employment came into existence when the owner emailed the plaintiff with the terms of their agreement, excluding the fixed term.  The plaintiff had failed to ensure that the 5-year 'guarantee' was incorporated into that agreement, and the evidence did not establish that Symphony had subsequently to make such a promise.  The parties' agreement was evidenced in the formal "Employment Contract" that they signed after the commencement of employment.  The Court also accepted the employer's evidence that the other documentation that was signed by the parties was solely for the purpose of helping the plaintiff to obtain a mortgage, and did not amend their agreement.  Given that the plaintiff had not established the parties' mutual intention that he would be employed for a 5-year term, the plaintiff's entitlement was to be determined in accordance with the common law factors applicable to "reasonable notice". In light of his short service, the fact that he relocated to take the job, and the availability of other similar work, the Court concluded that he was entitled to pay in lieu of two (2) months' notice (not the outstanding 52 months remaining on the purported contract claimed by the plaintiff).

The decision in Tossonian highlights the importance of clear communication and documentation.  The parties' agreement on the fundamental terms and conditions of employment should be reduced to writing, and signed by both parties prior to the commencement of employment.  If a party feels that the written agreement omits some important detail, their objection should also be put in writing and addressed in the contract (assuming they agree on its inclusion).  Where the contract consists of an exchange of correspondence or email, the parties would still be wise to create a formal document to memorialize their agreement prior to the employee starting work.  Doing so avoids confusion or misunderstandings that may arise later (when memories are not as clear and valuable evidence of negotiations may be gone).

Do you have questions about how to structure an employment agreement?  Need guidance on whether a fixed-term or indefinite contract is right for you?  Contact Lance Ceaser for expert assistance with your labour and employment law issues.