When considering the duration of an employment relationship, there are two primary options: either the employment period is for a fixed term, meaning the parties agree that the relationship lasts only until a specified date, or the employment period is indefinite, meaning it continues until it is terminated, for example, by the employee resigning or being fired.
The distinction is quite important. The termination of a fixed-term employment contract is treated quite differently than the termination of an indefinite employment relationship. This is sometimes good for the employee. Sometimes, it is not. In Makela v Horizon School Division No 67, the employee Mr. Makela likely wished he had agreed to an indefinite employment agreement.
Mr. Makela worked for his employer, Horizon School, for approximately 9 years. His employment contract was a fixed-term contract which specified May 31, 2016 as the end of the employment relationship. Unfortunately, Mr. Makela did not make it this far. He was terminated from his position in March of 2016. Being a longstanding employee, Mr. Makela likely expected to receive a somewhat substantial severance package – maybe even several months’ pay. What he ultimately received was disappointing: he was paid only until May 31, 2016, the end of the fixed-term contract.
Upset, Mr. Makela commenced an action for wrongful dismissal damages arguing that he was not provided sufficient reasonable notice at common law.
Fixed-Term Contracts and Reasonable Notice
The trial judge did not agree with Mr. Makela. At common law, the contract of employment remained a five-year fixed-term contract, and Mr. Makela was paid for all five years. Where contracts provide a specified end date, such as Mr. Makela’s contract did, then the contract itself is said to serve as a form of reasonable notice. For that reason, the trial judge dismissed Mr. Makela’s claim for termination without reasonable notice or pay in lieu thereof.
This appears to be the right result. It is well understood that the common law principle of termination on reasonable notice does not apply to fixed-term employment contracts. The Ontario Court of Appeal has said as much. Where an employee working pursuant to a fixed-term employment contract is terminated prior to the specified end date, they are entitled only to the income they would have earned for the remainder of the specified contractual period, unless they were terminated for cause or the contract provided a specific notice period that is less than the reminder of the term. Mr. Makela was terminated prior to the completion of the five year term, but he was paid the balance. His employer, therefore, had already met their obligations to him and he was entitled to no more.
Had Mr. Makela been working pursuant to an indefinite employment agreement, he likely would have received much more upon termination. Interestingly, if Mr. Makela had made it to the end of the fixed-term contract and continued working without entering into a new agreement with his employer setting out a new end date, his contract would have become an indefinite contract subject to termination on reasonable notice. In that scenario, his case likely would have succeeded. Unfortunately, that was not the case, and Mr. Makela was stuck with the terms of the agreement he signed.