For jobs such as teaching or seasonal work, fixed-term contracts are common and practical, but for many employers, these types of contracts can be risky.
We often advise our employer clients to avoid fixed-term contracts as much as reasonably possible. Here's why:
A fixed-term contract is worthless after the term lapses.
If you keep your employee for even 1 day past the fixed term, you may have entered an 'indefinite employment relationship'. In this case, you may only terminate the employment with the provision of 'reasonable notice'.
Renewals and extensions are difficult.
Periods of employment with your company that are less than 13 weeks apart are added together and treated as one, regardless of fixed term designations. And if your employee signs a series of fixed term contracts with you, the specified end date loses legal significance.
Non-Renewed Employees may still receive severance pay.
Under the Employment Standards Act and at common law, non-renewed employees may be entitled to severance pay.
Termination packages can be substantial.
The employee is often entitled to full payment for the full term of the contract. In the case of Howard v Benson Group Inc. at the Ontario Court of Appeal, an employee received 37 months's pay, representing the remainder of his unrealized 5-year fixed-term contract. Although the company tried to protect itself with an early termination provision, the Ontario Court of Appeal found it void.
Employment may actually be a better alternative.
Employees may be insulted by offers of fixed-term employment, especially if their co-workers are employed indefinitely. An offer of employment with a probationary period may serve the same purpose for your company as a fixed-term contract, without affecting the employee's morale.
Employment Agreements are a much better alternative to fixed-term contracts. Termination provisions in well-drafted agreements can limit your employee to as little as one week's notice per completed year of service and allow for probationary periods, temporary layoffs or changes of duties.
Contact Hyde HR Law today. Our lawyers are experts in drafting employment contracts that will protect your company's interests.