A “fixed-term contract” (sometimes called a “limited-term” contract or “temporary employment”), is an employment relationship (defined by contract that is of a fixed-term) that ends on a fixed date agreed to between you and your employee, without the need for one party to terminate the employment contract. Employees who are employed under a fixed-term contract are more commonly referred to as “contract” or “temporary” employees. Unless there is a contractual term to the contrary, neither party is required to provide notice to the other of the end of a fixed-term contract since the employment relationship naturally comes to an end at either a specified calendar date or upon the completion of a specified task or project.
Under a fixed-term contract, if the employer terminates the employee without just cause before the agreed upon expiry date, the employer must provide the employee with the compensation he would have earned had he continued to work to the end of the term. Courts are divided on whether this compensation is subject to an employee’s duty to mitigate.
Depending upon the time remaining under the fixed-term contract, this liability could be significantly greater/less than what the employee would have received as common law reasonable notice under an indefinite term employment contract. To avoid this potentially large termination liability, you and your employee may agree to a contractual amount of notice of termination, or pay in lieu of notice, so long as that notice or pay in lieu is not less than the minimum notice the employee is entitled to under minimum standards legislation.
Like all contracts, yes. Fixed-term contracts are typically used to create a temporary employment relationship without the need to provide notice (or pay in lieu) to the employee when that relationship ends. The benefit of a fixed-term contract is that it gives the employer significant control over its liabilities at the expiry of the employment relationship. Any employer that is contemplating the use of a fixed-term contract should also be aware of the significant risks in entering into a fixed-term employment contract – such as leaving your employee work past the end date of the contract. With this, in Ontario (and most provinces), if the employee works for only a single day beyond the term agreed to in the fixed-term contract, a court may find that the employment relationship continues under the terms of the original contract but subject to an indefinite term, rather than a fixed duration. The employee will then be entitled to common law reasonable notice of termination if he is terminated without just cause.
There is also risk in what are called “back to back” fixed term contracts. Courts are normally quite vigilant when an employee works for several years under a series of allegedly fixed term contracts. It’s important to speak to a Hamilton Employment Lawyer about this. Normally Courts will find that employers should not be able to evade the traditional protections of the ESA and the common law by resorting to the label of ‘fixed term contract’ when the underlying reality of the employment relationship is something quite different, namely, continuous service by the employee for many years coupled with verbal representations and conduct on the part of the employer that clearly signal an indefinite term relationship.
One of the main risks is early termination. Normally, an employee’s damages upon early termination of a fixed-term contract are measured by the compensation that the employee would have earned during the remaining period of the contract. This amount might be small or very large, depending on the length of that remaining period.
To avoid the potential for a very large damages award, it’s important that you speak to an employment lawyer regarding proper termination clauses which can potentially grant the employer the right to terminate the employment relationship without cause, prior to the end of the fixed term. The without cause termination clause should be drafted with the following issues in mind:
If your company or business requires a fixed-term or temporary agreement, call us at 905-333-8888 or fill in a contact form today. Our Hamilton Employment Lawyers serve employers and employees all over Ontario. We would be more than happy to discuss your particular situation and how we can help your employment contract requirements. Our goal is to cultivate a long-term relationship with all of our our employer clients. We endeavor to provide proactive legal help to help you maintain a positive and productive workplace, minimize risk, and prevent costly litigation.