Pros and Cons of Fixed-Term Employment Contracts in Ontario Employment Law

Fixed-term employment contracts are a common tool in workplaces across Toronto and Ontario. These agreements, often used for temporary or project-based roles, can offer employers flexibility in staffing and control over employment duration. However, some court decisions, including Wetzel v. Procom Consultants Group Ltd., 2022 ONSC 6056, have highlighted the legal risks associated with these contracts, especially when they are renewed multiple times.

Whether you are an employer considering a fixed-term employment contract or an employee asked to sign one, understanding your rights and obligations is crucial. Consulting a Toronto employment lawyer, severance package lawyer Toronto, wrongful dismissal lawyer, or employment contract lawyer can help prevent costly mistakes.

What is a Fixed-Term Employment Agreement?

A fixed-term employment agreement is a contract where the employment relationship is set for a specific period, such as six months, one year, or for the duration of a project. Unlike permanent or indefinite employment, fixed-term employees usually do not have the same entitlement to common law reasonable notice or severance at the end of the term, provided the employment contract is properly drafted and executed.

Employers often use fixed-term employment contracts for roles such as:

• Covering maternity or medical leaves

• Short-term projects with defined timelines

• Temporary replacement of permanent employees

• Seasonal or cyclical work

For employees, fixed-term contracts can offer temporary opportunities but may also carry risks if the terms are unclear or not consistently applied. Consulting an employment contract lawyer ensures that both the employer’s and employee’s interests are protected.

Advantages of Fixed-Term Contracts

When used correctly, fixed-term employment contracts provide several advantages for employers:

1. Predictable Termination: Employers can plan ahead, knowing the employment will end automatically when the term expires, without triggering severance obligations.

2. Flexibility: Employers can hire staff for short-term needs without committing to a permanent role.

3. Clarity: A well-drafted fixed-term contract clearly sets expectations regarding job duties, duration, and termination, reducing misunderstandings.

For employees, the benefits include gaining work experience and clarity on the role’s timeframe, though they should be aware that they may not be entitled to severance or notice if the contract ends as agreed.

Common Risks and Pitfalls

Despite their advantages, fixed-term contracts carry significant risks. Recent case law shows that improper drafting or repeated renewals can expose employers to wrongful dismissal claims and common law notice obligations.

Early Termination Risks

If an employer wishes to terminate a fixed-term employment contract before it expires, the contract must include a valid early termination clause that complies with the Ontario Employment Standards Act, 2000. Without it, the employer may owe the employee compensation for the remainder of the contract term. For example, if an is terminated one year into a three-year fixed-term employment contract, the employer would likely owe the employee damages for the remaining 2 years, unless it has a valid and enforceable termination clause. A severance package lawyer in Toronto can help draft enforceable termination clauses that minimize such risks.

Implicit Permanent Status Leading to Common Law Entitlements

When a fixed-term contract ends but the employee continues working without a new signed employment contract, courts may interpret this as the employee becoming permanent. This can trigger common law notice obligations, exposing the employer to unexpected severance costs. Employers should ensure renewals are documented clearly and promptly.

Pattern of Continuous Renewal

Repeatedly renewing a fixed-term contract can create the impression of indefinite employment. In Wetzel v. Procom Consultants Group Ltd., 2022 ONSC 6056, after six years of successive fixed-term employment contracts, the court ruled the employee was effectively permanent, entitled to reasonable notice. Employers must balance operational needs with legal risk to avoid inadvertently creating permanent employment relationships.

Overlooking Employment Standards Act Requirements

Even temporary employees are entitled to ESA protections such as overtime, vacation pay, and statutory leave. Fixed-term employment contracts longer than 12 months must also meet minimum termination notice or pay requirements. Ignoring these rules can lead to penalties and liability, reinforcing the need to work with a Toronto employment lawyer when drafting or renewing contracts.

The Wetzel Case: A Warning for Employers

A recent decision by the Ontario Superior Court of Justice Divisional Court underscores the risks of relying on successive fixed-term agreements. In Wetzel v. Procom Consultants Group Ltd., 2022 ONSC 6056, the court held that an employee who worked under multiple fixed-term contracts over several years may, in fact, be considered a permanent employee entitled to common law reasonable notice.

Case Background

Ms. Wetzel worked for Procom Consultants Group Ltd., a staffing agency, under nine separate fixed-term contracts spanning six years. Her final contract was a six-month term ending on December 15, 2018. Before the contract ended, Procom repeatedly issued written notices indicating her employment would terminate at that date. However, these notices were inconsistent with Procom’s past practice of withdrawing termination notices and renewing her contracts.

When the final term ended without renewal, Ms. Wetzel filed a wrongful dismissal claim, arguing she was effectively a permanent employee.

Court Findings

The Ontario court agreed with Ms. Wetzel. The court determined that:

• Successive fixed-term contracts can create an indefinite employment relationship.

• The repeated issuance and withdrawal of termination notices created uncertainty, meaning the written notices were ineffective.

• Ms. Wetzel was entitled to common law reasonable notice, covering over 5.5 months’ pay while she searched for a new job.

The Divisional Court later upheld this ruling, reinforcing the principle that repeated renewals of fixed-term agreements increase the risk of being classified as a permanent employee.

Key Takeaways for Employers

The Wetzel decision serves as an important reminder: employers cannot rely solely on the label “fixed-term”. Courts will examine the substance of the employment relationship. Some critical lessons include:

1. Repeated Renewals Can Trigger Permanent Status
   Even if each contract is labeled as fixed-term, repeated extensions may indicate the employee was intended to remain indefinitely. This can lead to wrongful dismissal claims and obligations to provide common law reasonable notice.

2. Inconsistent Termination Practices Create Liability
   Sending termination notices and then retracting them can undermine an employer’s ability to rely on fixed-term agreements. Clear, consistent communication is essential.

3. Fixed-Term Contracts Must Be Carefully Drafted
   Many standard fixed-term agreements do not sufficiently limit employer liability. Ensuring that contracts include enforceable termination clauses, clear start and end dates, and consistent language is crucial. A Toronto employment lawyer or employment contract lawyer can help craft agreements that reduce risk.

Practical Advice for Employers in Toronto

To minimize exposure to legal claims when using fixed-term contracts:

• Assess the role honestly: Only use fixed-term employment contract for genuinely temporary positions.

• Document every renewal clearly: If an extension is needed, have the employee sign a new employment contract before the previous term expires.

• Maintain consistent practices: Avoid sending conflicting messages about employment status.

• Seek legal guidance: A Toronto employment lawyer or severance package lawyer Toronto can review employment contract to ensure they comply with both common law and the ESA.

Call Toronto Employment Lawyer Now

It is important for an employee (or an employee) to obtain a legal consultation before taking any action that could affect the situation at workplace. Sezar has experience advocating for both employers and employees, which allows him to anticipate the other side’s arguments and develop an effective strategy, including termination of employment.

If you are looking for a wrongful dismissal lawyer in Toronto, call us today at 647-822-5492 for a case evaluation with an experienced employment lawyer.

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