Employment Contracts: The Problem with Fixed-Term Employment Contracts

by | Oct 15, 2014 | For Employers

I often get calls from an employer who has hired someone on short-term, fixed-term employment contract; that is, the person has been hired for 3 months, or 6 months, or a year.

Sometimes the person has signed an employment contract, and sometimes she has not.

In almost all cases, the employer would be in a better legal position if the employee had been hired for an indefinite period of time with a termination clause.

One Scenario: No employment Contract

In some cases, the employer hires the contract employee for a year to replace an employee who is on maternity leave. There is no discussion about what happens if the employee wants to return to work before the pregnancy leave is scheduled to end. This employee has the right to end her pregnancy leave early and return to work. In this case the temporary employee could claim she has guaranteed employment for a year, or that she is entitled to reasonable notice of termination.

The Other Scenario: Employment Contract

In some cases, the employee signs a fixed-term contract; that is, “You will be employed from January 1st to March 31st” If there is no termination clause in the contract and she is terminated before March 31st then the contract employee can claim she is entitled to be paid to March 31st.

If the employer decides to extend employment beyond the initial three month period and “forgets” to get the contract worker to sign another contract until AFTER the 3 month contract expires then the second contract may not be enforceable and the employee would be entitled to “reasonable” notice of termination.

An Alternative to Fixed-Term Employment Contracts

Instead of offering short-term, fixed-term employment I suggest that employers offer indefinite employment and include a termination clause in the employment contract that limits notice of termination to the minimum notice periods set out in provincial employment standards legislation. In Ontario, no notice is required in the first three months of employment, one week between 3 months and 1 year service, and two weeks notice for 1 year to 3 years service.

As a result, if the person returns from maternity leave then the cost to terminate her replacement is no more than 2 weeks notice. If she does not return from maternity leave then the employer does not have to prepare another contract for the replacement who is kept on.

Similarly, if an employer creates a new job and it doesn’t work out then the position can be eliminated in the first three months and it will cost the employer nothing to terminate the person in the position. Conversely, if the position works out then the employer can continue to employ the initial hire indefinitely.

For the past 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on employment contracts. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.



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