Fixed-term employment contracts have a time and a place ⋆ LegalMattersCanada

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‘No such thing as permanent or guaranteed employment’

“It is not uncommon for people to misleadingly refer to these as permanent employment contracts,” says Rudner. “Of course, that is never the case. There is no such thing as permanent or guaranteed employment.”

A fixed-term agreement has a specific start and end date and is suited to workers hired on a temporary basis, he says.

“For example, a person who is filling in for someone on a maternity or a paternal leave should be signed to a fixed-term employment contract,” Rudner explains. “The same would apply in the case of employees in an organization that relies on yearly government funding.”

Some companies may consider these workers to be contractors, which is wrong, he says.

“Contract workers have an independent relationship with employers. They are not being treated as employees,” says Rudner. “Those on a fixed-term agreement are considered employees when it comes to common-law and Employment Standards Act, 2000 (ESA) provisions.

“They would have more protections than a contractor,” he adds. “The biggest one being an entitlement to severance if the contract is terminated. An employee may also be entitled to statutory holidays, vacation and overtime pay. You do not get any of that as a contractor.”

Rudner says he has seen instances where employers sign a worker to a fixed term believing it is the best way to avoid paying benefits.

No obligation to provide benefits

“That is a complete misunderstanding because there is no obligation to provide employees with benefits,” he says. “They are called benefits for a reason. Presumably, you offer them if you want to attract staff.

“From a legal perspective, however, an employer does not have to offer them at all,” Rudner adds. “They can provide benefits to certain employees but not others. Although that may raise other concerns.”

Some companies also have the mistaken belief that a fixed-term contract relieves them of severance obligations in the event of a termination, he says.

“They seem to think that if there is a fixed end date, they are under no obligation to pay severance,” Rudner says. “That is true, but the problem is that if they fail to implement the contract properly, they can actually end up on the hook for paying more severance than they would with a contract of indefinite duration.”

For example, an issue can arise if the completion of the contract is not acknowledged and an employee continues to work, he says. That happens far too often. Employers simply forget when the contract was supposed to end, and the employee keeps working.

“Because the written agreement has expired it is no longer in force, all you have is a verbal contract,” Rudner says. “There is no contract to protect the company. The employer is essentially now on the hook for common law reasonable notice, which is more generous than provisions under the ESA. It is a significant and extremely common mistake.”

Workers entitled to be paid for the balance of the contract

Another error employers make is believing that they can terminate a fixed-term worker before their contract expires with minimal severance, he notes. However, workers are entitled to be paid for the balance of their agreement, he says.

“A company may be able to avoid that with a proper termination causes, although most termination clauses tend to be ineffective because of the way they were drafted,” says Rudner. “I have seen situations where an employer believes they are entitled to offer a few weeks’ pay to end a contract early. Then they discover they are actually on the hook for the full extent of the agreement, which could be many months more.”

It can also be a mistake for an employer to assume they can automatically renew a fixed-term agreement, he says.

“To have a true fixed-term contract, it must be written with a clear end date,” says Rudner. “If it is renewed, there should be meaningful discussion, perhaps even a renegotiation, before an extension or a new contract is signed.

“A series of short contracts that are automatically renewed will be seen as a contract of indefinite duration by the courts; they will see the “renewal” as a meaningless sham.”

He says he has seen cases where teachers sign one-year contracts at a private school but continue to work there year after year.

Courts see through successive fixed-term contracts

“Judges see right through employers who sign workers to successive fixed-term contracts year after year,” Rudner says. “They see it as an indefinite employment situation.”

The same applies to seasonal workers, he says, adding companies can take steps to protect themselves.

“Ensure fixed-term contracts have a clearly defined length, for example, Apr. 1 to Oct. 31,” Rudner says. “Make it abundantly clear there is no automatic renewal, that there will be discussions before a new agreement is signed. Otherwise, a worker an employer believes is seasonal might be able to claim their employment has been continuous with regular breaks every year and therefore are entitled to severance.”

He says the misunderstanding and mistakes surrounding fixed-term contracts underline the importance of paying close attention to employment agreements.

“Some companies believe they are clever and have found a way to avoid their legal obligations. But courts are not easily fooled,” Rudner says. “Employers should always seek legal advice to ensure their agreements are written and implemented properly.”