When a person agrees to accept particular employment, the parties typically sign an employment contract reflecting the terms of the agreement at the outset of the engagement of services. Importantly, employment contracts usually include a clause indicating whether employment is intended to be ongoing, indeterminate, or subject to a fixed term.

Signing a contract of fixed, rather than indeterminate, length has significant implications, including how the contract may be terminated and whether and what damages are owed to an employee if the contract is terminated early.

This blog explores the implications for employers and employees of entering into a fixed-term employment contract.

Parties Enter into Verbal Contract of Employment of Uncertain Term

The case of Smith v Lyndebrook Golf Inc. involved a wrongful dismissal claim. The defendant golf course hired the plaintiff in the case to work as their Golf Superintendent on May 7, 2022. Although the parties did not reduce the employment agreement to writing, it was agreed at the trial of this matter that the golf course had engaged the plaintiff to work for it as a golf superintendent, in exchange for which the plaintiff would be paid $70,000 for a full season ($1,800/week). The parties vehemently disagreed about the duration of the contract: the plaintiff asserted that he was promised work through the end of the 2022 golf season and that his contract was essentially a fixed term. The golf course, however, argued that although it expected the plaintiff to work for the entire 2022 golfing season, such expectation was neither guaranteed nor promised, such that the contract was indefinite.

Regardless of the terms of the contract, the plaintiff’s employment with the golf course ended approximately one month after he was hired when he was unceremoniously terminated without any notice or explanation. That termination gave rise to the wrongful termination claim, which necessitated that the court determine whether the employment contract was of fixed or indefinite duration.

How Does a Fixed Term Contract Differ from an Indefinite Term Contract?

A fixed-term contract is intended to endure for only a very specific length of time, following which the contractual relationship between the parties ends, typically on a specified date or upon the happening of a particular event. For example, a person may be hired to work on a specific project for a specific time. Once that time expires, the contractual relationship between the parties automatically ends, and the parties go their separate ways without any obligation on either party to fulfil any further commitments.

As the name suggests, a contract of indefinite duration is one of indefinite terms and, as such, does not have an end or expiry date. Most employment contracts are, generally speaking, of indefinite duration, in that most employees are hired to work for employers until such time as either party decides that the relationship no longer works for them and voluntarily ends the relationship in accordance with the terms dictated in the employment contract with respect to termination of employment. Employees of indefinite duration, when terminated, may seek to recover damages for reasonable notice, unpaid bonuses, overtime or vacation pay, amongst other damages, upon wrongful termination of the employment contract. Parties to contracts of defined duration are not entitled to pursue such damages but only to seek recovery of payments to which they are entitled.

Who Bears the Onus of Proving a Contract to be of Fixed Term?

As stated unequivocally by the court in this case, the employee bears the onus of proving that a particular contract is one of fixed, rather than indeterminate, duration. As such, any employee who seeks to establish that their employment contract is one of fixed duration must provide evidence that both parties to the contract intended to enter into a fixed-term contract and that their mutual intention to do so was clearly and unequivocally expressed.

Criteria Considered in Determination of Contractor Term

In determining whether a given contract is one of definite or indefinite duration, the first thing the court will undertake is to review the terms of the contract itself to review and consider the language used therein. Where, as here, the parties did not reduce their agreement to writing and therefore, no such document exists, the courts will consider the parties’ intentions when the contract was entered into and any guarantees made by the employer to the employee. In so doing, the court reviews and assesses the particular circumstances surrounding the creation of the contract and the parties’ behaviour after that in terms of whether it substantiates or counters the assertion of the existence of a fixed-term contract.

Was the Plaintiff a Contractually Term Limited Employee or One of Indefinite Duration?

In this case, the court noted that both of the parties focused on the question of whether the plaintiff had been promised a job until the end of the 2022 golfing season rather than considering the real question of what was the parties’ intentions if all had gone well during the 2022 golf season? Was the plaintiff expected to return to the golf course to work the following golf season, or would he have been expected to reapply for the position if he wished to return as golf chairman of the defendant golf course for the 2023 season?

The court considered that the evidence did not indicate that the parties had discussed going their separate ways at the end of the 2022 golf season. Moreover, there was no evidence to suggest that either party viewed this as a one-off, one-season employment contract. When hiring the plaintiff, an employer representative testified to the court that she had hoped he would remain with the golf course for a long time. However, this admission does not constitute the kind of clear, unequivocal evidence required to establish a fixed-term contract. Consequently, the court was satisfied that the plaintiff in this case had been hired as an employee of indefinite duration. As such, he was not entitled to payment of the remaining months of his contract, as sought, because the contract term was undefined.

What are the Implications of Fixed-Term Contracts?

The most significant implication of fixed-term contracts is that they must be paid out in full, even if the contract is ended early. This is significant because it means that if an employer hires someone to work for it for 12 months and then terminates the contract after only one month, then the employee in question is entitled to receive payment of the remaining 11 months of contractual pay despite not having actually worked for the same.

On the other hand, this also means that a person employed under a contract of defined duration may not seek reasonable notice of damages for wrongful termination or recovery of overtime or vacation pay.

Toronto Employment Lawyer Advising On Employment Contracts

If you are uncertain whether you are employed under a fixed-term contract or are an employee of indefinite duration, then you require knowledgeable legal advice to help you interpret your employment contract and ensure that your rights are protected and asserted in any related legal proceeding. Fortunately, the Haynes Law Firm is here to help.

From our downtown Toronto, Ontario office, the Haynes Law Firm is pleased to provide astute, comprehensive legal advice to employers and employees regarding all employment law matters. Contact us online or by telephone at (416) 593-2731.