Fixed Term Contracts

Posted:  May 23, 2024

To be or not to be ….a fixed term or indeterminate employee. This is one of the many questions that plague employers before hiring. When an employer is looking to hire a new employee the debate of whether to hire the person as an ‘indeterminate’ [permanent] employee or ‘fixed term’ [defined period or short term] employee arises.

In some circumstances hiring an employee as an ‘indeterminate’ can be undesirable, so employers look to limiting the length of their relationship with an employee by signing ‘fixed term’ contracts or agreements with the new hire. However, employers should consider the circumstances and risks before making a decision of what agreement it will use to define the employment relationship.

In the case of Kopyl v. Losani Homes (1998) Ltd., 2024 ONCA 199 (CanLII),  (Kopylov) the employee was hired on a fixed term contract of one (1) year. Six (6) months into the contract, the employer terminated the contract without cause, paying the employee four (4) weeks’ salary, as set out in the early termination clause of the contract. The employee had argued that the employer did not have the right to terminate her employment prior to the expiration of the term and that she should be paid her salary for this unexpired portion of the term, without her having a duty to mitigate her damages. The Ontario Superior Court of Justice found that the termination clauses were found to contravene the province’s Employment Standards Act 2000, (“ESA”) and were therefore void. The employer appealed the order of Justice R.J. Harper of the Superior Court of Justice, dated June 21, 2023.

On appeal the Employer did not dispute the fact that the termination clauses contravened the ESA and were void but argued that because one (1) termination clause in the employment contract contravened the ESA, all the termination clauses in the contract were automatically void. Therefore, the fixed term clause was in effect a termination clause, and this too should be void. The employer further argued that the judge failed to apply the decision in the case of Waksdale v. Swegon North America Inc., 2020 ONCA 391, 446 D.L.R (Wakesdale). However, Wakesdale did not involve a fixed term employment agreement and made no reference to Howard v. Benson Group Inc., 2016 ONCA 256, 129 O.R. (3d) 677, (Howard)

Ontario Court of Appeal’s Decision

The Ontario Court of Appeal in Kopyl v. Losani Homes (1998) Ltd., 2024 ONCA 199, at para. 5, found that the application judge made no error in finding the court’s decision in Benson Group Inc. to be dispositive of the application, stating that:

“The application judge rejected the appellant’s position and found that the invalidity of the Termination Clauses did not affect the validity of the Fixed Term Clause. Relying on this court’s decision in Howard v. Benson Group Inc., 2016 ONCA 256, 129 O.R. (3d) 677, at para. 21, the application judge found that a contractual provision providing for a fixed term of employment was not a Termination Clause since, upon the expiry of said fixed term, the employment relationship automatically terminates without any obligation on the employer to provide notice or payment in lieu of notice. Therefore, despite the invalidity of the Termination Clauses, the Fixed Term Clause remained in effect. The legal consequence was that the respondent’s employment had been wrongfully terminated and she was entitled to receive payment equal to her salary and benefits for the unexpired portion of the Term, less any amounts paid by the appellant, without any duty to mitigate.”

The Ontario Court of Appeal dismissed the employer’s appeal, after the hearing on March 13, 2024 and held that that when a termination clause is found to be void in a fixed term employment contract, the fixed term clause remains in effect. This entitles the employee to receive compensation for the duration of the fixed term employment contract.

Key Employer Take Aways:

1. Review Employment Agreements

Employers should regularly review and update employment agreements, ensuring compliance with current legislation and legal standards.

2. Ensure the Employment Agreement is Valid:

All employment agreements must comply with legislative standards and be signed off in advance of the employees start date.

For example, when an employee has begun working for the employer without signing an agreement they are entitled to statutory and common law rights. The employer cannot force an employee to sign an agreement (fixed term or indeterminate) after they have begun working without providing the person with fresh consideration (a benefit to the employee).  

3. Discuss the Circumstances and Risks of a “Fixed Term” Agreement:

When deciding whether to use a “fixed term” or “indeterminate” employment agreement employers should carefully consider the specific circumstances of the capacity of its workforce and its needs when drafting an employment agreement.

For example, when using a “fixed term” agreement, it can limit the duration of the employment relationship and the Employer doesn’t need to give notice of the end of the terms, however, if the employee continues to work and be paid after the end date of the agreement they are considered to be a “indeterminate” employee and may be entitled to common law notice [the purpose of having an employment agreement is to limit any payments to employees upon termination].

4. Seek Legal Advice Before terminating an Employee:

Having a lawyer review the employment agreement and discuss the surrounding facts can help the Employer assess the risks of termination and how to create a firm strategy in ending the relationship in a fair manner. 

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