Fixed-term contracts may seem like an attractive solution for employers seeking temporary solutions, such as covering a leave of absence or ensuring short-term project completion. Recently, the Ontario Court of Appeal emphasized in a decision that an invalid termination clause does not invalidate a fixed-term clause. These contracts can present numerous challenges and potential legal liabilities for employers. In this column, we’ll explore some of the key pitfalls of fixed-term contracts and provide insights on why they may not be the best option for employers.
Legal uncertainty: One of the primary challenges of fixed-term contracts is the legal uncertainty they can create for employers. While these contracts offer the illusion of certainty by specifying the duration of the employment relationship upfront, the legal landscape surrounding termination clauses is complex and frequently changing. Employers must ensure that their fixed-term contracts contain termination clauses and that these termination clauses are enforceable to avoid potential legal liabilities in the event of early termination.
Costly terminations: Early termination of fixed-term contracts can be costly for employers. In many cases, if an employer ends the relationship before the end of the fixed term, they may be required to pay the employee the entire balance of the contract term, which can exceed the regular severance pay. This can result in significant financial implications for employers, especially if the fixed term is lengthy or if multiple contracts are terminated prematurely.
