Term Contracts – What is Future Proofing? And What Should You Do About It?

Earlier this year, the Ontario Court of Appeals sent a clear statement to employers: A poorly written term contract will cost you. In Covenoho v. Pendylum Ltd., 2017 ONCA 284, the court ruled that when a termination clause will breach the Employment Standards Act (ESA) in the future, such clause is void and, therefore, unable to be enforced, even if the ESA is not being breached at the time the employee is terminated.

In order to protect your business, termination clauses must be valid at any point in the relationship set forth in the terms. Now, more than ever, it is necessary for Ontario workplaces to future-proof their contracts.

Understanding the Case

Pendylum hired the employee in this case under a one-year fixed-term contract. Right before the three-month mark, that employee was terminated without notice or payment in lieu of notice. The employee brought forth a summary judgment, claiming that the termination clause violated the notice requirements of the ESA.

The first judge in the case sided with Pendylum, since the employee was working less than three months and, therefore, was not entitled to notice or payment in lieu of notice under the ESA. The employee appealed the decision and the Ontario Court of Appeals ruled in her favor, based on the provisions included in the termination clause itself. The court ruled the provisions breached employment standards legislation by allowing Pendylum to terminate employment, at any time, without notice.

In its ruling, the court said the agreement “…. must be construed as if the [employee] had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void.” The employee was awarded $56,000, the balance of the value of her one-year term.

What This Case Means for Ontario Employers

Employers now have a new standard when it comes to termination clauses in term contracts. The bottom line? Termination clauses in term contracts must be crystal-clear and written accordance with minimum standards legislation. That means term contracts cannot offer less than what an employee is entitled to under the minimum standards set by employment standards legislation.

Most importantly, agreements need to be future-proofed for any notice provisions that would be owed to a longer-term employee, even in a term contract. Contracts that are not future-proofed could cause the termination clause, or the entire agreement to be nullified.

Understanding the threshold isn’t easy, but you can eliminate potential contract vulnerabilities by partnering with a staffing expert. Working with an employment agency protects you in the event that you have to end a term contract early, so you can rest easy knowing that your company is protected.

If you are ready to find the skilled talent your business needs, work with the  staffing industry experts at Employment Professionals Canada. Contact us today to learn how we can help you improve your hiring processes and keep you focused on achieving your business goals.