Employers often hire employees pursuant to fixed-term contracts
in order to avoid common law reasonable notice obligations and
other perceived liabilities. However, this practice can
unnecessarily expose employers to more costly legal liabilities
that can be avoided through the use of indefinite-term contracts
containing early termination provisions setting out minimal notice
The first danger to employers stems from the common law legal
principle which holds that when terminating a fixed-term contract
which does not contain an early termination clause, the measure of
damages is not the common law reasonable notice period. Rather, the
employee is entitled to the balance of the wages due for the
remainder of the contract's term, subject to the employee's
duty to mitigate.
The Ontario Superior Court recently applied this principle in a
decision where an employee with a fixed term
employment contract was terminated 30 months prior to the end of
the fixed term. The court ruled that the employee was not entitled
to common law reasonable notice. Instead, the court awarded her the
remaining 30 months' worth of salary for a total of
$129,372.38. To drive home the point, had the employee been hired
on an indefinite-term contract with a well-drafted early
termination clause, her entitlements would have been capped at
The second danger to employers stems from a shift in the common
law regarding early termination clauses in fixed-term contracts.
Until recently, if a fixed-term employment contract also included
an early termination clause, the employer could either end the
employment relationship at the conclusion of the contract's
term without providing any notice of termination, or the employer
could terminate the employee at any point throughout the employment
relationship pursuant to the early termination clause.
In recent years, courts have started to move away from the old
line of thinking. Courts have begun to view contracts containing
both fixed terms and early termination clauses as ambiguous. The
rationale for this new line of thinking is that employment for a
fixed-term is inconsistent with clauses which allow for termination
of employment prior to the completion of the fixed term.
For example, in a 2009 BC Supreme Court decision, an employee was hired on a fixed
term contract spanning five months. The employee was terminated
pursuant to the early termination clause in his contract only three
months into his employment. Despite containing a clear early
termination clause, the Court held that the contract was ambiguous
since in one paragraph it contained a fixed-term and in another it
contained an early termination clause. As is the case with
contractual ambiguities, the Court ruled against the interests of
the drafter of the contract, the employer, and awarded the employee
the wages he would have earned for the remainder of his
Despite this trend, a recent Alberta Court of Appeal decision provides some hope for employers who
wish to make use of fixed-term contracts. In this decision, the
Court upheld an early termination clause in a fixed-term contract,
ruling that there was no ambiguity. However, the Court made this
ruling on the basis that the provision setting out the term of the
contract was clear and made reference to the early termination
clause in the employment contract:
The parties understand and agree that employment pursuant to
this agreement is for a set term of one year and expires June 30,
2004, unless terminated earlier pursuant to the terms of
In this instance, the early termination language was viewed as
qualifying the fixed term rather than competing with it and
For employers, this means that any fixed-term employment
templates currently in use could be out of date and exposing
employers to legal liability. Employers should consider either
switching from fixed-term to indefinite-term contracts, or having
existing fixed-term contracts reviewed by a legal professional.
The lawyers at CCPartners can assist employers with drafting
effective employment agreements or with revising existing
agreements to ensure compliance with the ever-changing legal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).