Fixed-Term Contracts – Getting It Right

In Joss Covenoho v. Pendylum, the Ontario Court of Justice determined that the termination provision in the fixed-term contract properly limited the employer’s liability upon termination.

The employee was hired by Pendylum Inc. through a one year fixed-term agreement. Pendylum informed its employees that it was introducing mandatory education and criminal background checks and that their employment would be terminated if they refused to provide their consent. Ms. Covenoho refused to provide her consent and was terminated after less than three months of employment with Pendylum.

The employee claimed she was entitled to damages for the remainder of the term of the agreement.

The agreement between the parties stated:

2.1      The term of this Agreement will commence on the date of this Agreement and will                 continue in full force and effect unless the Agreement is terminated as follows:                                          

(a) immediately by PENDYLUM providing written notice to you if you violate or fail to honor any of these provisions of this Agreement or fail to perform your duties as set out in Appendix A in a satisfactory manner as determined by PENDYLUM (known as Cause); or if the PENDYLUM Client to which you have been contracted terminate[s] its contract with PENDYLUM for your services; OR

(b) by either party providing written notice of at least two (2) weeks to the other.

2.2      In the event of termination, we will have no liability to you, save and except to pay any accrued and earned compensation up to and including the date of termination.

2.3      Upon termination or expiration of the agreement, you agree to return and/or destroy all confidential information and copies and sign an undertaking that all Confidential Information has been returned and/or destroyed.

The Court held that the language in this employment contract expressly provided for early termination and that the employee was not entitled to be paid out for the remainder of the term. Furthermore, as Ms. Covenoho had been employed for less than three months, she was not subject to the notice provisions under the Employment Standards Act.

Fixed-term contracts can expose employers to significant awards of damages when the contract is for multiple years of employment and does not provide for an early termination clause. Employers must also be careful to enter into successive fixed-term contracts year after year. Fixed-term employment agreements must be carefully drafted based on the particular circumstances of the employment relationship and to ensure that the employer can end the contract prior to the end of the term with limited liability to the terminated employee.