Canada Employee Benefits News and Trends - ebs
Indefinite-Term Contracts in Canada: What You Need to Know
Indefinite-term contracts are the most common type of employment contract in Canada. Unlike fixed-term contracts that end on a predetermined date, indefinite contracts continue until either the employer or employee terminates the arrangement.
Our EBsource guide here examines the key features of indefinite contracts in Canada, including benefits, termination policies. Whether you’re an employer looking to structure compliant indefinite contracts or an employee weighing different work arrangements, this article will provide crucial insights. Read on to learn more.
What Are Indefinite-Term Employment Contracts in Canada?
An indefinite-term employment contract, also known as a permanent or open-ended contract, has no set end date. The contract continues indefinitely until one party terminates the arrangement.
In Canada, indefinite employment contracts are governed by provincial and territorial employment standards laws. They outline minimum requirements for indefinite contracts related to pay, benefits, termination notices, and more.
Some key features of indefinite-term contracts in Canada include:
- No Predetermined End Date: The contract continues until the employer or employee ends it through resignation, dismissal, retirement, etc. There are no fixed start and end dates.
- Full or Part-Time Hours: Indefinite contracts may specify full-time or part-time hours. Employers must abide by provincial/territorial minimum hours standards.
- Same Benefits as Permanent Employees: Those on indefinite contracts are entitled to the same benefits as permanent employees, like paid vacation, pension plans, etc.
Indefinite contracts are the most common employment arrangement in Canada. They provide stability for employees but allow employers the flexibility to terminate contracts when needed.
The Benefits of Indefinite-Term Employment Contracts in Canada
Indefinite-term contracts offer several advantages for employers and employees in Canada:
Benefits for Employees
- Guaranteed Wages and Benefits: Indefinite contracts outline pay rates, work hours, vacation time, and benefits clearly in writing. Employees can rely on these guarantees.
- Job Security: Indefinite contracts provide employees with long-term job stability rather than short-fixed terms. Unlike fixed-term contracts, there is no set end date barring dismissal or resignation.
- Financial Stability: The ongoing guaranteed wages and benefits of indefinite contracts allow employees to better plan finances long-term.
Benefits for Employers
- Employee Retention: Indefinite contracts help retain skilled staff long-term rather than high turnover with short fixed-terms.
- Lower Recruitment Costs: Greater retention means lower costs related to repeatedly recruiting and training new staff.
- Increased Productivity: Employees on indefinite contracts often have higher morale and productivity since they expect to remain long-term.
- Clear Organizational Structure: Permanent staff with indefinite contracts provide a clear structure vs. short-term hires coming and going.
In summary, indefinite contracts benefit both parties by promoting stability, retention, productivity, and financial planning.
What are the Drawbacks of Indefinite Contracts in Canada?
While beneficial overall, indefinite contracts also come with a few disadvantages:
Drawbacks for employees:
- Less freedom to change jobs quickly or try different types of work
- Potentially stuck in the role not suitable long-term for their skills
Drawbacks for employers:
- Long notice periods required to terminate employees
- Liability to provide severance packages upon termination
- Administrative responsibilities for ongoing benefits administration
- Employees are harder to terminate without just cause
What Should be Included in an Indefinite Contract in Canada?
Drafting compliant indefinite employment contracts in Canada requires the inclusion of certain provisions as mandated by employment standards laws:
- Job Details: Position title, responsibilities, compensation, work location, hours
- Benefits: Vacation time, leaves of absence, health insurance eligibility, pension plans
- Termination Policies: Notice periods for termination without cause, severance pay guidelines. Clauses defining “just cause” for termination without notice.
- Employment Standards: Language affirming adherence to provincial/territorial employment standards
Other clauses may cover confidentiality, intellectual property, probation periods, and disciplinary procedures. Always verify specific requirements with employment laws in the relevant province/territory.
How to Terminate an Indefinite Contract in Canada
Terminating indefinite employment contracts in Canada must comply with provincial/territorial employment standards. Employers cannot randomly dismiss employees on indefinite contracts.
Termination With Cause
Employers can terminate an indefinite contract without providing notice or severance if there is “just cause”.
This includes cases of employee misconduct, dishonesty, repeated negligence, or other actions that irreparably harm the employment relationship. The employer must prove just cause.
Termination Without Cause
If terminating employment without cause, the employer must provide written notice per the contract. This is usually 1-2 weeks’ notice per year of service.
The employer must also provide severance pay calculated based on tenure and pay rate, as outlined in the contract and provincial laws.
Here is the completed table showing the required notice periods for terminating indefinite contracts in Canada without cause:
| Employee Tenure | Notice Period Required |
| 3 months or less | 1 week |
| 3+ to 24 months | 2 weeks |
| 2+ to 4 years | 3 weeks |
| 4+ to 6 years | 4 weeks |
| 6+ to 8 years | 5 weeks |
| 8+ years | 8 weeks |
Employee Resignation
Employees resigning from an indefinite contract must submit written notice to the employer per the notice period outlined in their contract, usually 2-4 weeks.
Employees who fail to provide adequate notice may have to compensate the employer through a payment in lieu of notice.
Constructive Dismissal
If an employer makes significant negative changes to the employee’s role or compensation, this may constitute “constructive dismissal“.
This allows the impacted employee to resign and receive the same severance as if they were terminated without cause.
Alternatives to Indefinite-Term Employment Contracts in Canada
While indefinite contracts are the norm for ongoing job functions, other arrangements can provide more flexibility:
Temporary Employment
Hiring short-term workers through agencies to fill limited needs like seasonal spikes or special projects.
Independent Contractors
Engaging self-employed contractors for specialized projects requiring niche skills without hiring permanently.
Casual Employment
Using zero-hour contracts allowing employers to only schedule employees on an on-call, as-needed basis.
Probationary Periods
Hiring new permanent employees on an initial 3-6 month probationary period to assess fit before committing long-term.
These alternatives allow businesses to remain agile and pivot staffing based on changing needs. However, permanent roles are still best filled with compliant indefinite contracts.
Key takeaways
- Indefinite employment contracts are the most prevalent in Canada, providing stability for employees and flexibility for employers.
- Under indefinite contracts, employees can rely on guaranteed wages, benefits, proper notice or severance when terminated, and other protections mandated by employment standards.
- Indefinite contracts promote the retention of skilled talent, boost morale, and reduce recruitment costs. However, alternatives like temporary or casual workers allow for more staffing flexibility.
- Both parties should ensure indefinite employment contracts comply with provincial and territorial employment laws and include all required provisions around benefits, termination, “just cause”, and more.
By understanding the nuances of indefinite-term employment contracts in Canada, both employers and employees can leverage them effectively. Indefinite contracts remain the best option for permanent job functions to mutually benefit both parties.
FAQs About Indefinite Contracts in Canada
How long is the notice period for terminating an indefinite contract in Canada?
The notice period when terminating indefinite contracts without cause is typically 1-2 weeks’ notice per year of service. Most provinces cap notice periods at 8 weeks. Actual required notice periods depend on contract terms and provincial regulations.
What constitutes just cause for termination in Canada?
Just cause may include employee misconduct, dishonesty, negligence, or other irreparable actions harming the employment relationship. Employers carry the burden of proof and risks of a wrongful dismissal claim if unable to demonstrate just cause.
Does severance need to be provided when terminating an indefinite contract in Canada?
Yes, severance pay is required without cause when terminating indefinite contracts in Canada. Minimum severance ranges from 1 week to 2 weeks per year of service, depending on the province. Contracts may specify more generous severance.
Can employees sue for wrongful dismissal under an indefinite contract?
Yes. If terminated improperly without cause or against contract terms, the former employee can sue the employer for wrongful dismissal to seek additional compensation through the courts.
Can indefinite contract policies vary within a company?
Some policies like pay rates can vary. But core termination notice periods and severance pay requirements should be standardized within a company based on provincial regulations.
Article Sources
Indefinite-Term Contracts in Canada: What You Need to Know
Ben Nguyen