In Ontario, there are a few main types of employment contracts, each with its own characteristics and legal implications, especially upon early termination of the employment contract.
Indefinite-duration Employment Contracts
These are the most common type of employment contracts in Ontario workplaces. Basically, they have no fixed terminate date and generally continue until terminated by either party for cause (such as intentional misconduct), or without cause with proper notice cause (or pay in lieu of notice in a severance package). Under this employment arrangement, employees have more job security and benefits, while employers themselves obtain greater flexibility to manage their workforce. After a termination of employment, the employee has a legal duty to mitigate (or to try to find a new job) to reduce their financial losses of losing their job.
Fixed-Term Employment Contracts
These types of employment contracts have a specific termination date after a certain period of time (e.g., 3-year fixed-term employment contract). Generally, these employment contracts are used for seasonal work, project-based roles, or temporary replacements (such as to temporarily replace an employee on a maternity leave of absence). Unlike in an employment relationship or independent contractor arrangement, an employee in these circumstances generally does not have to try to find a new job to mitigate their termination damages (unless the fixed-term employment contract requires it).
Independent Contractor Agreements
These types of workforce agreements are typically used self-employed individuals who provide services to a business not as employees but as consultants or freelancers. In other words, independent contractor agreements for working relationships with “no strings attached.” They typically offer a worker more independence and control over their work, but unlike an employee, far less job security and benefits. Among other things, independent contractors do not have the benefit of employment law protections under the Ontario Employment Standards Act, 2000, which sets minimum standards for things like wages, hours of work, vacation, and termination notice.
However, these are generally more risky types of arrangements, as more often than not, a court or the Ministry of Labour will find the worker was actually an employee (or dependent contractor) as opposed to an independent contractor when challenged in a wrongful dismissal claim.
After early termination of an fixed-term contract with independent contractors who are engaged pursuant to a fixed-term contract will ordinarily still be required to mitigate their damages in the event of early termination, unless the independent contractor agreement states otherwise.
Early Termination of Fixed-Term Employment Contact
In Ontario, an employer generally cannot decide on an early termination of a fixed-term employment contract before its scheduled termination date without an employee’s consent, unless the contract contains an enforceable early termination clause that complies with the Ontario Employment Standards Act, 2000.
The Benefit of having a Legally Enforceable Early Termination Clause
When properly drafted, a fixed-term employment contract with an early termination clause will greatly benefit the employer because it will outline the specific situations under which it can end the contract early, such as an employee’s poor performance, misconduct, downsizing or simply for no reason at all (termination without cause) as long as it provides adequate notice or a severance package. Most importantly, by having an enforceable early termination clause, it will allow the employer to limit how much prior notice or severance package it must provide to the employee, such as only the minimum amount of termination pay, severance pay and benefits required by the Ontario Employment Standards Act, 2000.
If the employer decides to terminate a fixed-term employment contract before the expiry date, it will generally have to provide the employee the compensation he or she would have earned until had they been allowed to continue working until the expiry date.
Example of Fixed-Term Employment Contract
In a recent case called Elder v. Max Wright Real Estate, 2023 ONSC 5661, the court awarded a real estate agent with compensation representing the 11-month balance remaining in his 1-year fixed-term employment contract when it was terminated early by the company. In, even though it had an early termination clause presumably allowing the employer to terminate early and minimizing its payment obligations to the employee, the court found that the employer could not rely on it because it was not legally enforceable. In particular, the early termination clause stated the following:
“TERMINATION OF AGREEMENT
1. In the event the Contractor violates this Agreement or otherwise fails to conduct his/her business in accordance with the terms of this Agreement, the Company may terminate this Agreement immediately and without notice.
2. Either party may terminate this Agreement, without cause, at any time with written notice to the other party.“
In defending the wrongful dismissal claim, the employer argued that a clause in its contract allowed it to terminate without cause at any time, as long as it notified the real estate agent in writing. The fixed-term employment contract also allowed it to terminate with cause, immediately, and without notice.
However, the court found that the without cause termination provision was vague and ambiguous and therefore did not minimize the employer’s payment obligation to provide the wrongfully dismissed employee the full balance of his 11 months remaining on his 1-year employment contract.
Call Employment Lawyer Toronto Today
If you are an employee who believes you were wrongfully dismissed from your employment with or without a fair severance package, call today to discuss your options. As an employment law firm in Toronto, Bune Law has reviewed and negotiated improvements to many severance packages. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.