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Posts tagged: fixed-term employment contracts

Case Study: Why You Need to Periodically Review Your Employment Contract

By , October 11, 2017 9:08 am

A well-drafted employment contract is the best employment law investment an employer can make. It protects an employer from significant liability and will usually save thousands of dollars in termination costs.

An employment contract should be reviewed periodically because judges are refusing to enforce termination clauses if they are not drafted properly.

In a recent case, Covenoho v. Pendylum Ltd.,2017 ONCA 284, Ontario’s highest court concluded a termination clause was not legally enforceable because it might breach the Employment Standards Act (“ESA”) in the future.

The Facts

Joss Covenoho signed a one year fixed-term contract with Pendylum Inc. The employer terminated her agreement without advance notice when she had been employed for less that 3 months. The termination clause stated in part that the contract could be terminated before the end of the fixed-term “if the Pendylum Client to which you have been contracted terminate[s] its contract with Pendylum for your services”.

Decision by Motion Judge

The motion judge concluded that since the employee had been employed for less than three months, she was not entitled to any notice of termination. Under the ESA an employer is not required to provide any notice of employment to an employee during the first three months of employment.

Decision by Court of Appeal

The Court of Appeal reversed the motion judge’s decision and found that the termination provisions were void. It ruled that “the terms must be construed as if (the employee) had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void”. In this case, if Ms. Covenoho had been terminated after three months of work, then the termination clause would have violated the ESA because she could have been terminated without any notice of termination (or any payment in lieu of notice) contrary to the ESA.  The court also ruled the employee was entitled to receive the salary that she would have earned for the balance of the fixed-term contract.

Lessons for employers:

1)   Employers should periodically review their termination clauses to ensure they are properly drafted and do not provide shorter notice than required by the ESA.

2)  As we have written about before, it is generally a bad idea to enter into a fixed term contract. If a fixed term contract must be used, it must include an enforceable early termination clause.

On October 16 and October 20 MacLeod Law Firm is holding seminars in Toronto and Barrie that will cover three topics. One topic is why employment contracts need to be reviewed periodically. Cases like this one is one reason but there are other reasons. Information on the seminar can be found here.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

Employment Contracts: The Problem with Fixed-Term Employment Contracts

By , October 15, 2014 12:53 pm

I often get calls from an employer who has hired someone on short-term, fixed-term employment contract; that is, the person has been hired for 3 months, or 6 months, or a year.

Sometimes the person has signed an employment contract, and sometimes she has not.

In almost all cases, the employer would be in a better legal position if the employee had been hired for an indefinite period of time with a termination clause.

 

One Scenario: No employment Contract

In some cases, the employer hires the contract employee for a year to replace an employee who is on maternity leave. There is no discussion about what happens if the employee wants to return to work before the pregnancy leave is scheduled to end. This employee has the right to end her pregnancy leave early and return to work. In this case the temporary employee could claim she has guaranteed employment for a year, or that she is entitled to reasonable notice of termination.

 

The Other Scenario: Employment Contract

In some cases, the employee signs a fixed-term contract; that is, “You will be employed from January 1st to March 31st” If there is no termination clause in the contract and she is terminated before March 31st then the contract employee can claim she is entitled to be paid to March 31st.

If the employer decides to extend employment beyond the initial three month period and “forgets” to get the contract worker to sign another contract until AFTER the 3 month contract expires then the second contract may not be enforceable and the employee would be entitled to “reasonable” notice of termination.

 

An Alternative to Fixed-Term Employment Contracts

Instead of offering short-term, fixed-term employment I suggest that employers offer indefinite employment and include a termination clause in the employment contract that limits notice of termination to the minimum notice periods set out in provincial employment standards legislation. In Ontario, no notice is required in the first three months of employment, one week between 3 months and 1 year service, and two weeks notice for 1 year to 3 years service.

As a result, if the person returns from maternity leave then the cost to terminate her replacement is no more than 2 weeks notice. If she does not return from maternity leave then the employer does not have to prepare another contract for the replacement who is kept on.

Similarly, if an employer creates a new job and it doesn’t work out then the position can be eliminated in the first three months and it will cost the employer nothing to terminate the person in the position. Conversely, if the position works out then the employer can continue to employ the initial hire indefinitely.

 

For the past 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on employment contracts. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

 

 

 

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