A fixed-term contract can provide both employer and employee with certainty as to when the employment relationship will come to an end. This may be desirable for the fiscally concerned employer who wants to limit its obligation to provide work to an employee where the need or resources to compensate for that work in the future are not clear.
However, fixed-term contracts can cause an employer's cost containment efforts to backfire and expose it to significant and unexpected liability.
Courts have recognized that, absent a legal early termination clause, an employer who terminates the employment of a fixed-term employee before the end of the term is on the hook to pay out the balance of the remaining term. In McGuinty Funeral Home, the employee was let go one year into a 10-year fixed-term contract and was awarded damages of about $1.2 million.
If an employer is adamant on using a fixed-term contract, it is critical to not only include early termination provisions but to draft those provisions to be compliant with the minimum standards set out in The Employment Standards Code. Courts in Ontario have held that, if any termination provision in an employment contract is in breach of legislated minimum standards, all termination provisions are unenforceable (Waksdale).
Just this month, an Ontario Court considered an employer's argument that, if any part of the termination provisions in a fixed-term contract are offside the legislation, then the fixed-term itself should be inapplicable since a fixed-term is concerned with the termination of the contract. The Court rejected the argument, holding that a clause fixing the term of a contract cannot be considered in the same light as an early termination clause (para 11 of Kopyl v Losani Homes).
With these recent developments surrounding fixed-term contracts, it would be prudent to consider (or reconsider) whether the risks associated with their use are worth taking over using an indefinite employment contract with enforceable termination provisions.
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.
