Fixed-term employment contract: A complete guide for employers

A fixed-term employment contract can be a valuable tool for Canadian employers, but it comes with unique risks. Using fixed-term contracts correctly can provide your business with the flexibility and budget predictability you need to take on new projects, cover leaves of absence or manage seasonal work. Used incorrectly, however, and you could face significant financial liabilities.

This guide is for Canadian employers who want to understand fixed-term contracts to use them strategically and mitigate risk.

What is a fixed-term employment contract?

A fixed-term employment contract is a formal agreement between an employer and an employee for a specific, predetermined period. This is different from a typical indefinite employment contract, which has no set end date and continues until either the employee resigns or the employer provides legal notice of termination.

For employees, this means they have a clear understanding of the job’s duration from the outset. For employers, it means you can hire for a specific period without the long-term commitment of an indefinite hire.

When to use a fixed-term contract

Fixed-term contracts are best used for temporary, non-permanent roles. They’re a strategic choice when you need to:

• Cover a leave of absence, such as a parental or long-term sick leave.
• Handle seasonal business spikes, like the holiday rush in retail or harvest season in agriculture.
• Bring on a specialist for a specific project, such as a graphic designer for a marketing campaign or a software developer for a new app launch.

These contracts are not suitable for ongoing, core operational roles. Using them for permanent positions can create risks and liabilities.

Key elements every fixed-term employment contract should include

A well-drafted contract is your best defence against risk. A strong fixed-term contract should always include:

• Clear start and end dates: This is the most critical element. The contract must specify the exact start date and a concrete end date.
• Job description and scope of work: Clearly define the employee’s duties and responsibilities.
• Compensation and benefits: Detail the wage or salary, pay schedule and any benefits the employee is eligible for.
• Termination clauses: This is crucial for controlling risk. The contract must clearly state the terms under which either party can end the employment relationship early, and what compensation is due.
• Renewal or extension terms: Outline the process for renewing the contract and ensure that any renewal is agreed upon in writing.
• Compliance with the Employment Standards Act (ESA): The contract must, at a minimum, comply with the provincial or federal employment standards legislation that applies to your business.

Fixed-term contract template for employers

Here’s a preview of the fixed-term contract template you can download and customize based on your requirements: 

Advantages of fixed-term contracts for employers

When used properly, fixed-term contracts offer several benefits including:

• Budget predictability: Since you know the exact duration, you can plan for precise labour costs.
• Flexibility for project-based work: Easily scale your workforce up and down as project needs change.
• Access to specialized skills: You can hire experts for short-term projects without making a permanent commitment.

Risks and pitfalls of fixed-term contracts

While fixed-term contracts offer flexibility, they also come with specific legal risks you must be aware of.

• Early termination liabilities: Without a well-drafted termination clause, ending a fixed-term contract early can lead to significant financial penalties. An employee may be entitled to the pay they would have earned for the remainder of the contract, rather than a few weeks’ notice, as is often the case with an indefinite contract.
• Ambiguous or unenforceable termination clauses: If the termination clause is not clear and compliant with employment standards, a court may deem it unenforceable. This can expose you to expensive common law claims.
• Successive contracts leading to indefinite status: This is a major pitfall. If you repeatedly renew a fixed-term contract, a court may view the arrangement as an indefinite employment relationship. This “recharacterization” could entitle the employee to a substantial severance package if you later decide to end the relationship.
• Misclassification and compliance issues: Make sure the role is truly temporary. Using a fixed-term contract for a permanent role can create legal challenges.

Hero Tip: Always ensure each contract renewal is clearly documented and that the total duration remains reasonable for a fixed-term arrangement.

Legal considerations for employers

Understanding the legal landscape is key to minimizing risk when it comes to fixed-term employment contracts. Here are key facts that your business should consider

• ESA notice obligations: Generally, a fixed-term contract that reaches its specified end date does not require notice of termination under the ESA. However, if you terminate the contract early without cause, you must provide, at a minimum, the ESA-required notice or pay in lieu.
• Common law treatment of early termination: The common law in Canada often holds that an employer who ends a fixed-term contract early must pay the employee for the balance of the contract’s term, unless the contract has a valid and enforceable termination clause.
• Why termination clauses must be precise: Courts have been strict in their interpretation of termination clauses. Any ambiguity or non-compliance can void the clause, leaving you exposed to common law damages.

Recent court cases, such as Waksdale v. Swegon North America Inc., have highlighted the importance of a compliant termination clause. In that case, the court ruled that a “just cause” termination clause that violated the ESA rendered the entire termination clause unenforceable, even the “without cause” provision. This shows how a small error in one part of a contract can have huge consequences.

Should you use a fixed-term contract?

A fixed-term contract is a powerful tool, but requires consideration for when they should apply to your business. They are ideal for employers who need flexibility and budget certainty for a truly temporary need.

To mitigate risks, remember to:

• Use them only for temporary roles
• Draft clear, precise contracts with enforceable termination clauses.
• Avoid indefinite renewals that could recharacterize the relationship.
• Review your contracts regularly to ensure they comply with evolving employment law.

Download our fixed-term employment agreement to get started with crafting a customized one for your business. Consult an employment law specialist before issuing any contracts.amental step toward responsible and effective business management in the modern digital age.

The information in this template is current as at 1 August 2025, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The content is general information only, is provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this template. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this template.