A contract employee in Ontario is generally an employee who works under an employment agreement for a specified period of time, until a particular task is completed, or until a specified event occurs. These arrangements are commonly referred to as fixed-term employment contracts.
Contract employees have many of the same employment rights as other employees in Ontario. However, their rights when employment ends can depend on the length and wording of the contract, whether the contract ends as scheduled or is terminated early, and whether the employee has worked under a series of repeatedly renewed contracts.
A common misconception is that contract employees are never entitled to notice of termination, termination pay or severance pay. The rules are more complicated and depend on the circumstances.
This article explains the rights of contract employees in Ontario, including what can happen when a fixed-term contract expires, when an employer ends the contract early, and when a contract has been repeatedly renewed. To learn more about different types of employment agreements, see our guide to employment contracts in Ontario.
Note: A contract employee is not the same as an independent contractor. Independent contractors are generally self-employed and different legal rules may apply. Learn more about the difference between employees and independent contractors.
What Rights Do Contract Employees Have in Ontario?
Contract employees may have rights under Ontario’s Employment Standards Act, 2000 (ESA), their employment agreement and the common law. Being hired under a fixed-term contract does not automatically mean that an employee gives up their employment rights.
However, fixed-term contracts are treated differently from indefinite-term employment agreements when the employment relationship ends. An employee’s entitlements can depend on whether the contract reaches its agreed end date, the employer ends the contract early, or the employment relationship continues beyond the original term.
What Happens When a Fixed-Term Contract Ends?
A fixed-term employment contract is intended to end on a specified date or when a specified task is completed. Unlike an indefinite-term employment relationship, there is generally no implied common law requirement for an employer to provide reasonable notice when a valid fixed-term contract simply reaches its agreed end date.
Ontario’s Employment Standards Act, 2000 regulations also contain special rules for employees hired for a definite term or specific task. Generally, these employees are not entitled to statutory notice of termination or termination pay when their employment ends as contemplated. However, exceptions apply, including where:
- the employment ends before the term expires or the specific task is completed;
- the term expires or the task remains incomplete more than 12 months after the employment began; or
- the employee continues working for three months or more after the term expires or the task is completed.
Whether a contract employee is entitled to termination pay, statutory severance pay, common law notice or other compensation will depend on the circumstances and the terms of the employment agreement.
What Happens If a Fixed-Term Contract Is Ended Early?
Different considerations apply when an employer terminates a fixed-term employee before the contract’s agreed end date.
The employment contract may contain a termination provision that sets out the employee’s entitlements if the employer ends the relationship early. Whether that provision is legally enforceable can significantly affect the compensation the employee receives.
Where a fixed-term employment contract does not contain an enforceable provision allowing for early termination, the employee may be entitled to contractual damages representing the compensation they would have received for the remainder of the term.
For example, an employee terminated six months into a one-year fixed-term contract could potentially be entitled to compensation for the remaining six months, depending on the wording of the contract and the circumstances.
The Ontario Court of Appeal considered this issue in H. v. Benson Group Inc., 2016 ONCA 256. The employee had been hired under a five-year fixed-term contract but was terminated with approximately three years remaining. The Court found that, in the absence of an enforceable contractual provision providing otherwise, the employee was entitled to compensation for the remainder of the fixed term.
Learn more about ending a fixed-term employment contract early and how the terms of the agreement can affect an employee’s entitlement to compensation.
Are Contract Employees Entitled to Severance or Termination Pay?
Contract employees may be entitled to compensation when their employment ends, but the type and amount of compensation depend on the circumstances.
It is important to distinguish between statutory notice of termination or termination pay under the ESA, statutory severance pay, common law reasonable notice and contractual damages. These are different legal entitlements and the term “severance” is often used generally to describe compensation that may actually fall into one of these different categories.
For a fixed-term employee, one of the most important questions is whether the contract ended on its agreed expiry date or whether the employer terminated the employment relationship early. The wording and enforceability of any termination provision in the employment contract can also significantly affect the employee’s entitlements.
What If Your Fixed-Term Contract Keeps Getting Renewed?
A series of fixed-term contracts does not necessarily mean that an employee will always be treated as a fixed-term employee. In some circumstances, a court may find that a long-running employment relationship involving repeatedly renewed contracts has become an indefinite-term employment relationship.
In Ceccol v. Ontario Gymnastic Federation, the Ontario Court of Appeal considered an employee whose one-year employment contract had been repeatedly renewed over many years. The Court found that the employment relationship should be treated as one of indefinite duration.
Whether repeated fixed-term contracts create an indefinite employment relationship depends on the particular facts. Courts may consider the wording of the agreements, the parties’ conduct, the length and continuity of the employment relationship, how the contracts were renewed and whether the employee could reasonably expect the relationship to continue.
Ontario’s employment standards rules may also become relevant to successive fixed-term contracts. The Ontario government’s ESA Policy and Interpretation Manual states that continuous, back-to-back definite terms are added together when determining whether the 12-month limit for the definite-term exemption has been exceeded.
Read our article on fixed-term contracts and repeated renewals for more information about cases including C. v. Ontario Gymnastic Federation, T. v. Cardel Homes Limited Partnership and F. v. Shorcan Brokers Ltd.
Can You Quit a Contract Job Before the Contract Ends?
An employee may want to leave a fixed-term position before the contract’s scheduled end date. Before resigning, it is important to review the employment agreement to determine whether it contains a resignation or notice provision and what obligations may apply.
Leaving a contract early can have different consequences depending on the wording of the agreement and the circumstances surrounding the resignation. Employees should also consider any provisions dealing with matters such as notice of resignation, confidentiality, non-solicitation or other post-employment obligations.
If you are considering leaving a fixed-term contract before it expires and are unsure about your obligations, an employment lawyer can review the agreement and explain how its terms may apply to your situation.
Contract Employee vs. Independent Contractor
A contract employee should not be confused with an independent contractor. A worker can have a written contract and still legally be an employee. Similarly, calling someone an “independent contractor” in an agreement does not necessarily determine their legal status.
Worker classification depends on the substance of the working relationship. Factors such as control over the work, ownership of equipment, financial risk and the worker’s opportunity for profit may be relevant.
If you have been classified as an independent contractor but believe you may actually be an employee, read more about independent contractors and employee misclassification in Ontario.
Speak With an Employment Lawyer About Your Contract
If your fixed-term contract has ended, has not been renewed, or was terminated before its expected end date, it is important to understand what your employment agreement says and what rights may apply.
Your entitlements can depend on the wording of the contract, the length of the employment relationship, whether the contract was repeatedly renewed, and whether the employer ended the relationship before the agreed expiry date.
Monkhouse Law Employment Lawyers can review your employment contract and explain your potential rights and entitlements. Contact us today for a free 30 minute phone consultation.