Generally speaking, fixed-term contracts allow employers to predetermine the date on which the employment relationship will end with an employee without the need to provide notice of termination or payment in lieu thereof.
While this can seem as a beneficial arrangement to employers, it comes with various risks which could impose even more liability on employers than if they had simply hired the employee on an indefinite, rather than fixed-term basis. Such issues most commonly arise in the context of early termination of a fixed-term employment contract. For example, where a contract is entered into for a 1-year term, but the employer decides to terminate the employee at the end of the 6 months mark, the employer may be liable for the full remaining unpaid portion of the contract, being 6 months. Whether or not this will be the case may depend on whether the contract has a provision which allows the employer to terminate the agreement early, and if so, whether the Court will determine that such provision is valid and enforceable. If the answer to both questions is negative, then the employer will likely have to pay the remaining owed portion of the contract when it terminates it prematurely.
When the fixed-term contract does not contain an “early termination provision”, the analysis is focused on whether the employment contract is truly a fixed-term agreement, and if so, the employee will be entitled to the wages he or she would have received to the end of the term. When an “early termination provision” is present, the Court must decide if, based on the contract language, it is enforceable considering, for example, whether it complies with Employment Standards legislation, or the language is too vague or ambiguous to be properly enforced. Where this occurs, the Court will strike the invalid provision from the agreement and enforce the same as if no “early termination provision” exists.
Where a court finds that a valid fixed-term contract exists, it may be subject to a rare exception to the duty to mitigate, which all indefinite employment relationships are normally bound by. Under the common law, upon termination of an indefinite employment agreement, the employee must seek to mitigate his or her loses, by looking for another job and/or accepting reasonable employment, failing which any damages that may be recovered could be reduced by the Court. However, damages arising for the early termination of a fixed-term contract are considered akin to liquidated damages, or damages predetermined pursuant to the agreement which are equal to the wages and benefits for the unexpired term of the contract, where no valid “early termination provision exists” (see Howard v. Benson Group Inc. (The Benson Group Inc.), 2016 ONCA 256).
As lawyers with expertise in employment law, we often advise our clients with regard to the enforceability of their employment agreements and their rights in accordance with the nature of the employment relationship, be it indefinite or fixed-term. You may contact us if you have any questions.