A fixed-term contract is an employment agreement with a specific end date or a clearly defined duration. If the employee is terminated before the end of the term, they may be entitled to compensation for the balance of the contract, including pay through to the contract’s end date.
As per Ontario Regulation 288/01, when a fixed-term contract expires on the date set out in the contract, the Employment Standards Act (“ESA”) does not require notice of termination to be paid by the employer unless the term is longer than 12 months.
Different rules apply when an employee is terminated before the end date of a fixed-term contract.
An early termination clause in the employment agreement that sets out the notice period for early termination will typically determine how much notice is provided during early termination.
Typically, an employment contract will include an early termination clause that sets out how much notice or pay the employee will receive if the contract ends early. If that clause is valid and enforceable, it will usually govern the employee’s entitlements.
Yet, an often applicable and critical exception is when the termination clause in the contract is found to be unenforceable. Whether it be not complying with the minimum requirements set out in the ESA or the clause being overly vague, it will be deemed null and void, and can be enforced. (Section 5(1) of the ESA; Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986)
When there is no longer an enforceable termination clause, the standards set out in the Common Law will apply, and under the Common Law the employee is entitled to notice or pay for the entire remaining term of the contract. (Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986; Howard v. Benson Group Inc., 2016 ONCA 256)
In the decision Howard v. Benson Group Inc., 2016 ONCA 256, an employee who was on a five-year fix-term contract was terminated without cause after only 23 months. The Court of Appeal found that the termination clause in the employee’s employment contract was vague. Accordingly, the standards for early termination under Common Law applied. As a result, the employee was awarded pay for the remainder of the five-year term.
An early-termination clause is not always determinative of the notice or pay owed. Under the common law, a fixed-term employee may be entitled to compensation for the balance of the contract if the employment is terminated early.
Accordingly, as a fixed-term employee, you may be entitled to greater notice or pay than what was provided upon termination.
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