Author: Daniel A. Lublin
The more I see the less I know for sure. – John Lennon
For many employees, the perils of fixed term employment contracts are clear and unambiguous. Unfortunately for Frank Flynn, when it came to his employment contract, a little bit of clarity amounted to a whole lot of doubt.
Highly skilled and highly paid bond trader Frank Flynn joined Shorcan Brokers Ltd. in 1998. Shortly thereafter the company began giving all its employees, including Flynn, fixed term employment contracts. Fixed term contracts are contracts for a specific period of time, in this case one year periods, where neither the company nor the employee has any obligation to one another after the contract comes to an end.
Each year Flynn continued to sign one year fixed term contracts until 2002 when his contract expired and no new contact was negotiated. Out of work for the next six months, Flynn sued Shorcan for wrongful dismissal claiming that the employment relationship was really of a permanent character and therefore, he was entitled to severance pay for the period of time that he was unemployed.
At trial, Flynn lost his case as the court found that the employment contracts he signed were clearly for a fixed period of time and it couldn’t be said that he was employed indefinitely. If he had been, Flynn would likely have been entitled to a significant sum of money when his employment came to an end.
When it comes to fixed term employment contracts, certainty is the key. I, therefore, offer the following advice for both employers and employees to consider when confronted with the choice of either a fixed or indefinite employment relationship.
Employees on a fixed term contract for 12 months or less are not entitled to any notice of termination or severance pay at the contract’s end.
If, however, the employer terminates the employee before the end of a fixed term contract, the employee is usually entitled to receive his or her salary for the balance of the contract.
In certain situations, such as where an employee is hired to complete a certain task or replace a permanent employee on temporary leave, a fixed term contract makes sense. To create a fixed term contract, it must be crystal clear that this is the intention. If there is any uncertainty, there is a risk that a court will interpret the contract as being for an indefinite basis.
Employers should beware of allowing an employee to continue to work after the end of a fixed term contract, without signing another one. If so, it may be found that the employee has become permanent.
Where an employee signs a series of otherwise valid fixed term contracts over a lengthy period of time, a court may interpret the relationship as having become permanent and the contracts as an invalid means of disguise.