Fixed-term employment contracts are agreements where an employee is hired for a specific period of time, and where the contract has a defined end date. As the contract says how long the employee will be working for the employer, there is generally no additional notice or termination pay given to an employee at the end of a fixed-term contract. Often fixed-term employment contracts will be used for short-term hiring, such as hiring students for a few months during breaks from school, hiring for a short-term project, or to cover another employee’s leave. But they can also be used for longer terms, and many can last for several years.
While fixed-term employment contracts can be beneficial in some cases, many issues can arise for employers who use fixed-term employment contracts, especially where the employee is being hired for a fixed-term that lasts for several months or years, and where the employee is terminated before the end date of their contract.
A recent Ontario Court of Appeal decision provides some insight on what employers and employees should be weary of when working with fixed-term employment contracts:
In Kopyl v Losani Homes (1998) Ltd., 2024 ONCA 199, an employee was hired for a one year fixed-term contract and their employment was terminated after only six months of work. The employee claimed that they were entitled to termination pay as they had a fixed-term employment contract with an invalid termination clause.
The validity of the termination clause was not in dispute in this case as both the employer and the employee recognized that it offended the Employment Standards Act, 2000, and was void as a result. However, the parties disagreed about the amounts owing to the employee.
The Court of Appeal held that the employee was owed the compensation that they would have been paid until the end date in the contract because the termination clause in the contract was invalid and because they’d been terminated before the end of the fixed-term. This resulted in the employee receiving around six months’ worth of pay.
Kopyl is a helpful reminder about the challenges with fixed-term employment contracts and the importance of having valid termination clauses in employment agreements. While an employer can terminate a fixed-term contract without cause before the term is over, they may still have an obligation to pay the employee to the end of the contract if the contract does not have a valid termination clause. Where a fixed-term employment contract is for a longer period of time, this can result in the employer paying the employee significantly more than they had anticipated.
Employers who use fixed-term contracts should consider speaking with an employment lawyer to better understand the terms of their contract and the associated risks. Employees on fixed-term contracts should also consider speaking with an employment lawyer if they are terminated to ensure that they understand their entitlements and options.
This blog post was written by Lori Philpott, a member of the Employment Law team. She can be reached at 613-369-0382 or at lori.philpott@mannlawyers.com.
