Fixed-term employment contracts can be a practical and effective management tool for employers. They are useful in many scenarios, including the completion of short term projects or the temporary replacement of a permanent employee away on leave. Unlike employees who are hired on indefinite-term contracts, fixed-term employees are not entitled to statutory or common law notice of termination following discharge at the end of the employment term (or what is more commonly referred to as severance).
Canadian courts require fixed-term contracts to be clear and unequivocal. This makes sense, given the significance of the distinction between the two and the very different ways that fixed-term and indefinite-term employees are treated at law. Any ambiguity as to the length of the term will be interpreted in favour of the employee and is counted as evidence of an indefinite-term employment agreement.
As an alternative to offering fixed-term employment, employers should consider limiting their liability by offering indefinite-term employment contracts containing termination clauses that limit notice of termination to the minimum notice periods set out in provincial employment standards legislation.
Employers who wish to use fixed-term contracts should be aware of the risks and should seek out expert advice to ensure that such contracts are carefully drafted in order to minimize those risks. Specifically, employers should:
Employment standards legislation varies from province to province. For example, Ontario regulations provide that employees are entitled to statutory notice of termination in the following situations: (a) where the fixed-term employment contract exceeds 12 months, (b) where employment ends before the end of the term, and (c) where the term is extended more than 90 days beyond the original term. By contrast, the legislation in British Columbia simply provides that all employees who are employed for a definite or fixed term are exempt from statutory notice requirements.
Fixed-term contracts should set out the fixed term in clear, unequivocal, plain language. If a contract is for a fixed term but the substance of the contract contemplates that it may operate for either a longer or shorter period of time, a court may find that this creates sufficient ambiguity to render the term unenforceable. Accordingly, employers should ensure that early termination clauses are carefully drafted, and do not include automatic renewal clauses.
Explain the effect of the fixed-term clause to the employee. Make it clear that, at the end of the term, the employee will not be entitled to statutory or common law notice of termination of employment. Have the employee initial the relevant provisions in the contract to indicate that he or she has read and understands them. Above all, treat the employee as if he or she will only be employed for the fixed-term stipulated in the contract.
Katherine Reilly is a Principal in the Advocacy & Litigation group at McMillan LLP. Katherine practices out of the firm’s Vancouver office, and has experience handling a wide range of complex business disputes, including employment law matters. Katherine is an experienced trial lawyer who has appeared at all levels of court in British Columbia, and as trial counsel on a number of Supreme Court trials. Katherine is well regarded for her practical, results-oriented approach, as well as her attention to detail and negotiation skills. She has successfully resolved numerous disputes on behalf of clients outside the court system using mediation and other forms of alternative dispute resolution.
Tyson is an associate in the Employment and Labour Group in McMillan’s Vancouver office. Tyson assists both domestic and international clients in navigating all aspects of provincial and federal law including, employment standards, occupational health and safety, human rights, workers' compensation, and labour relations. Tyson also advises clients on the drafting of employment agreements, defending wrongful dismissal claims, creating comprehensive workplace policies, and managing privacy issues. In conjunction with his employment practice, Tyson advises clients on business immigration law and related human resource issues.
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A cautionary note:
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
