Types of Employment Contracts – Fixed Term vs. Indefinite Duration

Employment Contract

The distinction between fixed-term employment contracts and contracts of indefinite duration is an important one due to the great difference in the potential damage awards that are available to the employee in the event of possible litigation.

What’s the Difference?

Indefinite Duration Employment Contracts

In contracts of an indefinite duration, employment is one of continuous service and intended to last for an indefinite period of time, with no specified or foreseeable end to the relationship. This type of contract is accompanied by a number of rights and obligations, most notably the right to reasonable notice upon termination.

Fixed Term Employment Contracts

In fixed-term contracts, the employment relationship is intended to last for only a specific and definite length of time or until a specific project is completed. Once the term or project is finished, the fixed-term employment relationship ends.  Such employees are often referred to as being in a “contract” position.

Where there is a validly constituted fixed-term contract, an employer is not required to provide the employee with reasonable notice since the employment relationship naturally comes to an anticipated end at either a specified time or upon the completion of a specified project.

Terminology is Not the Determining Factor

The type of contract that the employment relationship falls under is not determined solely by the terminology used in the contract itself. The overall character of the employment is the determining factor for whether a contract is considered fixed-term or one of indefinite duration.

For example, a person may be subject to a series of fixed-term contract over several years, but the overall character of the employment suggests that the person is actually an employee of indefinite duration. In such cases, courts may set aside the fixed-term contract and view it instead as one of indefinite duration, which is accompanied by associated entitlements and obligations, such as reasonable notice of termination.

Engaging the services of an employment lawyer in advance of drafting or accepting an employment contract can help ensure that employers and employees receive their full entitlements and meet their legal employment obligations.

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