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Terminating a Fixed-Term Contract

If you are an employee of a company, it is likely that you are working for the employer in accordance with the terms of an employment contract. A standard employment contract that does not indicate any ‘term’ or length of employment, is presumed to be of “indefinite duration.” An indefinite duration employment contract has no fixed end date; accordingly, the employee continues to accumulate service with the employer over time.

If no triggering event occurs, such as (1) the employer terminating the employee’s employment without cause; (2) the employer terminating the employees’ employment for just cause; (3) the employee resigning from his or her employment; (4) the employee resigns from his or her employment as a result of an intolerable work environment (commonly referred to as a constructive dismissal) or resigns for other opportunities, then the employee is deemed to continue in his or her employment for the foreseeable future.

Conversely, a fixed-term employment contract stipulates a start date and an end date of employment. Employers will typically hire workers on a fixed-term contract to replace other workers that are on leaves (i.e., maternity leave) for a defined period of time or to increase staffing levels for a specific project. The worker can still be considered an employee of the company (not an independent contractor) and the regular protections of the Employment Standards Act are still afforded to the employee operating under a fixed-term employment contract; however, the most important provision to consider when entering into such a contract is the language contained in any termination provision.

In a fixed-term employment contract, the employer does not automatically have the right to terminate the contract early and provide reasonable notice or payment in lieu thereof as is required in the dismissal of an employee operating under an indefinite duration employment contract. Rather, the parties to the fixed-term contract must clearly and unambiguously set out what the severance obligations of the employer are should the employment contract be terminated before the end of the fixed-term. Absent clear and specific language in the fixed-term contract around the amount of termination pay a fixed-term employee is entitled to should the contract be terminated before the end of the term, the employee is entitled to be paid out for the balance of the contract.

In other words, if you are an employee that was hired for a one-year fixed term contract and the employer terminates your employment after 6 months on the job, you may be entitled to payment of the entire balance of the contract (i.e., remaining 6 month period). Accordingly, in the context of a fixed-term employment contract, employers’ could be on the hook for much more than the employees’ common law severance entitlements which would apply if an indefinite duration contract governed the employment relationship. While employers’ are permitted to enter into fixed-term contracts, and sometimes do so in the expectation that severance obligations will be minimized or avoided in the event of termination, the opposite often results. For employees, your entitlement depends on whether the fixed-term employment contract contains an enforceable termination provision which limits your entitlement on termination.

As always, it is best to consult a highly-rated employment lawyer to review your employment contract and the circumstances around your dismissal to determine whether you have any right to greater severance or other damages that have been provided to you by your former employer.

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