FIXED TERM EMPLOYMENT AGREEMENT AND TERMINATION NOTICE
Every employment agreement can be terminated, even those that do not contain a termination provision. It is recognized that a contract of employment does not have an indefinite existence and may be terminated by either employer or employee. While a termination of an employment agreement itself is not a wrongdoing, the dismissed employee is entitled to the notice period agreed upon in the employment agreement. If the employment agreement does not specify the notice period, or the notice period is below the minimum required under the Employment Standards Code, then the employee is entitled to the common law notice period.
The foregoing applies to a fixed-term employment agreement as well. However, in a true fixed-term employment agreement, the common law notice period does not depend on so-called Bardal factors (e.g. length of service, qualifications, age, availability of similar employment etc.). Instead, the court is of the view that a fixed term employment agreement with a specified end date itself serves as a form of reasonable notice. In Makela v Horizon School Division No 67, 2019 ABQB 974 [Makela], the court reaffirmed this view.
In Makela, the Employee entered into a series of fixed-term employment agreement during his tenure, which commenced on April 1, 2007. The last one was for a five-year employment agreement which would last from June 1, 2010 to May 31, 2016. However, before the expiry of the employment agreement, in March 2016, the Employer terminated the agreement and paid the Employee in full up to the end of the five-year term.
The employment agreement contained the following termination clause:
The [Employer] may terminate this agreement upon giving [the Employee] three hundred and sixty-five (365) days written notice, or such number of days remaining in the contract term, whichever is less (the “Termination Clause”).
In this case, the Employee argued that section 55 of the Employment Standards Code [the Code] still required the Employer to provide a termination notice since the fixed term employment agreement exceeded 12 months in duration, and sections 56 of the Code required the Employer to provide a termination notice not less than 6 weeks. However, as the Termination Clause could have authorized a termination notice of less than 6 weeks, the Employee argued that he should be treated as an employee of indeterminate duration who would be entitled to common law reasonable notice period by virtue of sections 3 and 4 of the Code.
The Court, however, disagreed with the Employee’s argument. The Court was of the view that, even if the Termination Clause was void, the employment relationship was still for a fixed-period, and the Employer satisfied the common-law notice obligation by paying the employee through to the originally contemplated expiry date.
Unfortunately, the Court in Makela did not comment or rule on whether a fixed-term employment agreement that was void in its entirety for violating the Code could be considered as (or converted to) an employment agreement for an indefinite term. It simply focused on the common law notice period for a fixed-term employment agreement. Yet, this case still sends important messages to the employers:
- If you are drafting a fixed-term employment agreement that exceeds one year in duration, make sure the agreement also complies with the Employment Standards Code.
- If you are terminating an a fixed-term employment agreement early, make sure that you also comply with the minimum notice requirement under the Employment Standards Code.
Author: Justin Kwon
For related blogs, please read: