Fixed-term contract employees are hired for a specific period. They have an employment contract that sets out the date that the period of employment will end. Employers often use fixed-term contract employees if they need assistance for specific projects or require cover for an employee who is on leave. 

In contrast to employees hired for an indefinite period that may be terminated at any time upon the provision of reasonable notice or pay in lieu of notice, fixed-term contract employees do not need to be given notice because employment ends when the contract expires.

This article looks at what can happen if an employee is terminated before the end of the term specified in the fixed-term contract. We also look at a recent decision of the Superior Court of Justice of Ontario in which an employee argued that he was terminated under a fixed-term employment contract and entitled to his salary for the remainder of the term. 

What can happen if an employee is terminated before the term expires?

It all depends on the specific terms of the employment contract, so it is important to get advice from an experienced employment law lawyer.

It is possible that a fixed-term employment contract specifically provides for early termination. If this is the case, it may specify a fixed term of notice or payment in lieu. This specified notice period might apply in the event of early termination, meaning that the employee is not entitled to be paid out for the remainder of the term of the contract.

However, if the parties to a fixed-term employment contract do not specify a predetermined notice period, it is possible that the employee is entitled, upon termination of the contract, to the wages that they would have received to the end of the term of the contract. 

An employee was working under a fixed-term secondment contract

In Nader v University Health Network, the plaintiff employee was employed by University Health Network (UHN) as an Executive Vice President. Under his agreement with UHN, he was entitled to 12-months salary if he was terminated without cause. 

In 2019, the plaintiff was seconded to Ontario Health. He entered a secondment contract with both of the defendants, UHN and Ontario Health, which provided “subject to early termination in accordance with this agreement”, the plaintiff will be seconded to Ontario Health for a period of two years from September 3, 2019, to August 31, 2021. The contract provided that he would remain an employee of UHN and continue to be paid by UHN. It also specified that the plaintiff would return to a comparable position at UHN upon termination of the secondment contract, or if such a position didn’t exist, that he would be entitled to the termination entitlement under his agreement with UHN.

The secondment was terminated before the end of the contemplated term

In September 2020, Ontario Health said that the secondment would end in October. In the meantime, UHN had hired a replacement, so the plaintiff’s position was no longer available. UHN terminated the plaintiff and continued paying his salary for an additional 12 months, as required by his employment agreement with UHN.

The plaintiff commenced proceedings and argued that the secondment contract was a fixed-term agreement, the termination of which entitled him to his salary for the balance of the term in addition to payment for 12 months as required by the agreement with UHN.

The secondment contract could be terminated before the end of the two-year term

Justice Black held that the secondment contract implicitly contemplated the scenario in which the contract was terminated prior to the end of the two-year term. Even though there was no explicit termination mechanism, the contract contained the phrase “subject to early termination in accordance with this agreement”.

A fixed-term agreement can be terminated before the term expires – the issue was what compensation flows from the early termination. 

The secondment contract was not an employment agreement

The defendants argued that the secondment contract was not an employment contract, and as such, the rule that the employee is entitled to be paid out for the remainder of the term where the contract does not provide for early termination did not apply. They observed that the plaintiff was asking to be treated as both an indefinite term employee of UHN and a fixed-term employee of Ontario Health, in order to “double collect” damages for termination. 

Justice Black looked at some case authorities that confirmed, against the backdrop of a continuing employment agreement under which the original employer retains responsibility for the payment of salary, a secondment agreement is not an employment agreement per se. It was “something other, and in its own category”.

In any event, his Honour also found that the plaintiff’s secondment contract contained a predetermined notice period. The clause that referred to the plaintiff’s termination entitlement under his employment contract with UHN governed this situation – in the event of termination without cause, the plaintiff was to receive 12 months’ salary.

Justice Black decided that the plaintiff was not entitled to payment for the balance of the two years contemplated as the probable duration of the secondment. 

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

The team at Haynes Law Firm in Toronto has been helping employers understand their responsibilities regarding fixed-term contract employees since 1994. The firm’s founder, Paulette Haynes, has written the country’s definitive text on non-standard employment arrangements and is frequently sought after by employers across various industries for her expertise in this area. She also assists employees that have been terminated to ensure they receive maximum compensation and all eligible benefits from their employers.

Haynes Law Firm helps employers and employees throughout Ontario achieve effective solutions to legal issues and conflict management in employment law and civil litigation. To discuss how our employment law team can assist you, please contact us online or call us at 416.593.2731.