For some jobs, fixed term employment is common and makes intuitive sense: like teachers, seasonal workers and project-based employees. However, fixed term contracts are often risky and seldom practical.
To elaborate, here are five reasons why we advise our clients against hiring employees on a fixed term contract:
1. You could end up paying an exceptionally large termination package
Presumptively, the employee is entitled to full payment for the full term. It was because of that presumption that the company got burned in Howard v Benson Group Inc. In that case, the company was ordered to pay the balance of the plaintiff’s 5-year fixed term contract – a whopping 37 months. That loss was not a result of carelessness: the company had included an early termination provision in the contract. But the Court ignored that provision, declaring it void and unenforceable. The company could have saved a lot of time and money by using an indefinite-term employment contract.
2. If the fixed term lapses, the contract is worthless
Keeping the employee for even one day past the fixed term means the contract has lapsed. If that happens, it can undo all of your planning and preparation; that employee automatically becomes an indefinite employee, and may only be terminated with reasonable notice.
3. “Renewal”and “Extension” are tricky business
It’s usually not worth the hassle to renew or extend fixed term employment. The reason is that it seldom has the desired effect.
For instance, under the Employment Standards Act, two periods of employment with the same employer count as one, unless they’re more than 13 weeks apart. In other words, whether that employment was on a “fixed term” is irrelevant. As well, if an employee signs a series of fixed term contracts with the same employer, the specified “end date” can lose legal significance.
4. “Non-renewal”is a form of termination
Sometimes, an end date is not an end date, and the employer liability continues. For instance, employers may have to give notice and severance pay under the Employment Standards Act, and at common law, to “non-renewed” employees.
5. Fixed Term contracts can damage employee morale
Offering employment with an end date may leave some employees feeling insulted and devalued. In contrast, permanent employees feel like part of the team. Therefore, a better solution is to offer indefinite employment with a probationary period. As an added bonus, doing so usually serves the same purpose; makes the employee happier; and avoids many of the hidden traps of fixed term employment.
6. The alternatives are simple and relatively painless
Employers can draft termination provisions that limit the employee to the minimum statutory notice. That means the employee’s termination entitlement will generally be only one week’s notice per year of service, or thereabout.
Trust only an employment lawyer to draft, review, and advise you on your employment contracts. Contact Hyde HR Law today for a consultation.