Fixed-term employment contracts are used to hire an employee for a specified period of time. This is in contrast to the normal situation of employing an individual for an indefinite period. Employers may prefer a fixed-term employment contract for certain situations, such as if they only need assistance for a particular project expected to last a certain duration or if they need cover for another employee who is on leave. 

Ending a fixed-term contract has different implications than terminating a regular employment contract. Depending on the circumstances, an employee that ceases working under a fixed-term contract may be entitled to less or more than they would have been if they were a regular, indefinite employee. 

This article takes a look at why this is the case by examining some of the general principles that apply to fixed-term employment contracts and a recent decision of the Ontario Superior Court of Justice in which an employer sought to defend an action for wrongful dismissal by arguing that the employee was on a fixed-term contract.

Do you have a fixed-term employment contract? 

First things first, is there even a fixed-term contract in place? A fixed-term contract specifies the date the employee’s employment will end. Although this might be obvious from the terms of the contract, sometimes it isn’t clear, and the parties to an eventual dispute disagree. 

Suppose there is doubt about whether the employment contract is fixed. In that case, the court looks for unequivocal and explicit language suggesting a fixed-term arrangement to ensure that relationships of continuous service are correctly characterized as fixed-term employment. It is a question of fact based on the words used in the contract and the reasonableness of the parties’ assumptions from those words.

Is a fixed-term employee entitled to reasonable notice of termination?

Some rights given to employees under the Employment Standards Act are not available to those working under fixed-term contracts. An example is the entitlement to reasonable notice of termination. 

Subject to the particular terms of the agreement, fixed-term contract employees that finish working for the employer at the end of the term do not need to be given notice because employment simply ends when the contract term expires.

A terminated fixed-term employee could be entitled to be paid the balance of the term

In some circumstances, a fixed-term employee will be entitled to reasonable notice or termination pay. 

An example is if an employee on a fixed-term contract is terminated before the end of the term. The outcome will depend on the terms of the contract. It may contain a termination clause that allows the employer to terminate the contract before the end of the term after providing a specified period of notice. 

However, if the fixed-term contract does not contain such a termination clause, the employee may be entitled to a contract buyout, meaning the wages they would have earned had they been permitted to serve the remainder of the term. We recently reported on a case where the employee was paid $54,000 in damages for wages for the balance of a one-year contract. 

Temporary employee’s term was extended four times

In Steele v The Corporation of the City of Barrie, an employee who worked for the City of Barrie brought a wrongful dismissal claim after his employment was terminated without cause and reasonable notice.

The plaintiff’s initial employment contract stated that “the expected duration of [the] temporary employment [was] expected to be … approximately two years” from June 5, 2014, to June 3, 2016. The employee subsequently received four extensions, each confirming that the temporary position had been extended to a specified date.

The final extension notice said that the period of employment was extended to December 31, 2017. He was no longer employed from this date, with his contract not extended again.

Employee argued that he was a permanent employee

The plaintiff claimed he was a permanent employee entitled to reasonable notice of termination. He argued that the term specified in the agreement needed to be clarified. 

In the alternative, he claimed that he had become a permanent employee as the employer’s conduct led him to understand that he was indefinitely employed. The plaintiff relied on some cases in which continuous service for many years, together with representations and conduct, established an indefinite-term employment relationship. 

Court decided employee was on a fixed-term contract; dismissed the claim

Justice McCarthy decided that the initial contract was clear as to the term. Despite speaking of an “expected duration” of “approximately two years,” which left open the possibility of extensions, it precisely set out the dates of the initial employment period. The extension notices were also unambiguous, describing the arrangement as “temporary” and specifying end dates.

His Honour also found that the plaintiff could not reasonably have formed the impression that his employment term was indefinite. There was no evidence to support this, and various matters tended to show that the arrangement was for a fixed term, such as the extensions granted before the end of the terms. 

As a result, the court concluded that the plaintiff was employed under a fixed-term contract, which was subject to valid fixed-term extensions until the last one expired in December 2017. There was no wrongful dismissal or need for the employer to provide reasonable notice.

Contact Haynes Law Firm in Toronto for Guidance on Fixed-Term Employment Relationships

The Haynes Law Firm advises employers on their obligations to fixed-term employees. The founder of the firm, Paulette Haynes, drafts contractual arrangements that reflect the current situation and provide the flexibility needed, including in relation to the termination. Haynes Law Firm also works with employees to protect and advocate for their legal rights and ensure they receive all of their entitlements in the event of termination. Employees may be entitled to more than their employers say, so it is best to get advice from an experienced employment lawyer. Please contact the firm online or call us at 416.593.2731.