Did You Know That The Early Termination of a Fixed Term Contract Requires Special Attention?

Generally speaking, employment agreements are either for an indefinite term or a fixed term. Either the employment relationship continues until the employer or the employee ends the relationship, or the employment agreement specifies a date when the employment relationship will end. A contract position to cover for a maternity leave is a good example of a fixed term employment agreement.

With a fixed term employment agreement, unless the employee acts in a way that would constitute cause for dismissal, the employee is entitled to work until the end of the term and be paid for his services. However, there maybe times when the employer is forced to end the relationship before the end of the term, even though there may be no cause to do so. For instance, the loss of a key customer could make a fixed term employee’s position unnecessary or redundant.

In such cases, if the employer chooses to end the employment relationship before the end of the term, the employer is obliged to pay the employee the remuneration that would have otherwise been earned, up to the end of the term of the employment agreement. For example, if a fixed term employment agreement is terminated without cause two months into a 12 month term, the employer would be required to pay the employee the remuneration that would have been earned over the course of the remaining 10 months. In addition, the employee would have no obligation to mitigate his losses by trying to find new employment, as is the case with employment agreements for an indefinite term. Earlier this year, the Court of Appeal dealt with just this issue. A link to that decision can be found here.

The take-away from this case is that it is important, when preparing fixed term employment agreements, to consider including a provision that specifies a predetermined notice period in the event that it is necessary to terminate early and on a without cause basis. Otherwise, the employer could be faced with a substantial financial burden at a time when the employer can least afford it.

This article is intended only to provide general information and does not constitute legal advice. Should you require advice specific to your situation, please feel free to contact me to discuss the matter further.