All of us are familiar with term contracts awarded to sports
stars - the 10 million dollar contract for three years for a
leading professional player - but term contracts are also common
outside professional sports.
A term contract is a contract for a defined term with a defined
end date. Often a term contract will provide for termination before
the end of the term, and, so long as it complies with any relevant
employment standards legislation, the contract can be terminated
earlier by complying with those terms. Otherwise, if the contract
is terminated before its term ends there are two possible outcomes,
which may or may not require the employer to pay out the contract
to the end of the term. In one scenario, any payment by the
employer to the end date is subject to the employee's duty to
mitigate, and in the other case, there is no such duty. Which of
these apply depends on the terms of the contract itself. Often term
contracts are 'pay or play' contracts, meaning no
mitigation is required.
The more difficult issues arise when employers renew term
contracts, resulting in a series of term contracts. Section 8(2) of
Regulation 288/01 under the Ontario Employment Standards Act,
2000 (the "Act") provides that employment
periods separated by less than 13 weeks are deemed to be continuous
for purposes of calculating termination entitlements under the Act.
In other words, if the employment of one term is followed by
another that commences less than 13 weeks after the first term
ends, the employment period is deemed to have been continuous for
purposes of termination notice under the Act.
But does this principle apply to common law obligations? Many
employers attempt to get around the common law provisions of
reasonable notice by providing a series of term contracts. A recent
Quebec court has followed the example set in many common law courts
and found that in many cases, a series of term contracts, one
following the other, creates a long term common law contract
deserving of reasonable notice or pay in lieu thereof. In several
recent cases, courts have indicated that a series of such term
contracts, one following the other, can, but will not necessarily
result in such a finding. But what are the circumstances that lead
to this result? Some of the relevant factors for this determination
Were Records of Employment ("ROE) provided at the end of
If ROEs were provided, and if there was a period of
non-employment between terms, did the employee apply for and/or
receive employment insurance benefits between terms?
Were there any real negotiations prior to entering into each
Did the employee have any obligation to give notice that he or
she would not be available for any successor term, or was no such
Did the employer have any obligation, express or implied, to
give notice that there would be no successor term available or was
it understood that further employment might or might not be
available? Did the issue of availability relate to circumstances
over which the employer had no or little control?
Are there external factors which influence the need for short
term contracts and that change from time to time. Can the employer
show that this need has altered the numbers and types of employees
hired? Are the employees hired aware that they are hired to fulfill
a need that can change and that is the reason for the term
Any other factor relevant - including verbal assurances that
may have been given without authority.
If you intend to use term contracts, and have a legitimate need
to do so - as in the case of seasonal employment or employment
depending on external factors such as enrolment, membership or
funding-it is essential that the employees you hire understand that
they are being hired for the term only and that neither you nor
they have any obligation to the other after the term is over. You
should also issue ROEs at the end of each term.
A long series of term contracts with no hiatus and with no real
change in duties from one to the other may create a presumption of
long term continuous employment that will be hard to refute. Make
sure you establish and keep records to substantiate the
factors above as well as any other relevant factors.
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.
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