Authors: Stephanie McDonald and Baljinder (Bal) Singh Tiwana
What is a fixed-term employment contract?
A fixed-term employment contract is a legally binding agreement between an employer and employee, that specifies a predetermined start and end date, i.e., a fixed term, in the contract.
The end date will dictate when the employment relationship concludes, without need for notice or severance, provided the contract is properly drafted and compliant with governing employment laws.
Fixed-term employment contracts are commonly used for:
- Project-based work
- Temporary staffing needs
- Maternal or paternal coverage
- Seasonal work
How do fixed-term contracts differ from indefinite (permanent) contracts?
A fixed-term employment contract specifies a clear end date for the employment relationship, while an indefinite (permanent) employment contract has no predetermined end date.
In Ontario, although indefinite contracts remain more common, fixed-term contracts are being increasingly used across various industries.
Termination of a fixed-term contract without an enforceable termination clause
In Ontario, if a fixed-term contract does not contain an enforceable termination clause, an employer cannot lawfully unilaterally terminate the contract before its agreed end date, without payment of reasonable notice.
The period of reasonable notice for individuals terminated before the specified end date of a fixed-term contract is the balance of the remuneration the employee would have earned had the employee worked until the end date of the contract.
For example, if your fixed-term contract was supposed to on December 31, 2025, and it is terminated on June 30, 2025, you are entitled to pay in lieu of 6 months of your total compensation with the employer.
Because you could be entitled to a substantial period of notice if your contract is terminated well in advance of the end of the term, it’s so important that you do not sign the severance package offered to you without speaking with a lawyer.
Termination of a fixed-term contract with an enforceable termination clause
If your fixed-term employment contact includes an early termination clause that complies with the Ontario Employment Standards Act 2000 (“ESA”), and your lawyer agrees that it is enforceable, your employer can legally end the contract early upon providing you with your minimum entitlements under the ESA.
What does the court consider when determining the enforceability of early termination clauses?
The enforceability of an early termination clause largely depends on how it is drafted.
Generally, Courts are more likely to uphold clauses that are:
- Clearly and precisely worded, avoiding vague and ambiguous language
- Compliant with the Employment Standards Act
Mitigation
Under common law, employees terminated early from a fixed-term contract are not obligated to mitigate (i.e. not subject to common law duty to mitigate) their damages by seeking alternative employment. This means:
- The court will not deduct any earnings the employee could have or did earn elsewhere from a comparable job from the damages awarded.
However, this default position can be modified by contract. If the employment agreement explicitly states that the employee must mitigate their losses upon early termination, that obligation may be enforced—provided the clause is clearly worded and mutually agreed upon.
Conclusion
Navigating the legal framework surrounding fixed-term employment contracts is critical for employees to fully understand their rights from the outset.
Before entering into a fixed-term agreement, seeking guidance from a suitably qualified legal professional is highly advisable. This can help mitigate potential legal risks and ensure that you negotiate and secure the most favourable and compliant terms.
At Workplace Sage Legal, we’re here to help you navigate the complexities of fixed-term contracts and ensure that your rights are protected upon termination.
DISCLAIMER: This article/blog is provided for educational/informational purposes only. The views expressed are solely those of the author(s) and should not be attributed to any other party not listed as the author(s).
While reasonable efforts have been made to ensure the accuracy of the content provided, it does not constitute legal advice. Prior to relying on any aspect of this article, you should consult with a suitably qualified legal professional promptly in your relevant jurisdiction, to obtain advice tailored to your individual circumstances
Nothing in this article should be interpreted as forming a solicitor-client relationship or construed as a solicitation for legal services.
