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.
For employers, this contract is a strategic tool for securing long-term talent and stability. For employees, it represents a crucial guarantee of job security and financial planning. However, this stability comes with significant legal obligations, particularly regarding employee termination and severance.
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.
Three 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.
What makes indefinite-term employment contracts valuable in the Canadian workplace?
Indefinite-term contracts provide advantages to both employees and employers when properly structured and implemented.
Benefits for Employees
For employees, an indefinite-term contract provides a robust foundation for both their professional and personal lives.
- 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 their finances long-term.
Benefits for Employers
For employers, fostering a workforce based on indefinite-term contracts is a strategic investment in organizational health and long-term success.
- 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:
For employees, the disadvantages are less about legal constraints and more about career strategy and mindset.
- Less freedom to change jobs quickly or try different types of work
- Potentially stuck in a role not suitable long-term for their skills
Drawbacks for employers:
For employers, the main drawbacks are financial and legal in nature, including:
- Long notice periods are required to terminate employees
- Liability to provide severance packages upon termination
- Administrative responsibilities for ongoing benefits administration
That said, while indefinite contracts are integral to the Canadian workplace, they require careful management from both sides. For employees, the challenge is to remain proactive in their career development. For employers, these contracts can introduce significant financial and legal risks.
To manage these risks, it is crucial for employers to have well-drafted employment agreements, effective performance management systems, and a strategic approach to workforce planning.
What Should be Included in an Indefinite Contract in Canada?
When drafting an indefinite employment contract, it is critical to distinguish between terms that are legally mandated by labour standards and those that are optional perks offered by the employer.
Mandated Provisions (Statutory Requirements)
For employees in federally regulated sectors, the contract must align with the Canada Labour Code. Based on government guidance, the following areas are regulated by law and must be respected in the employment agreement:
- Compensation: The contract must guarantee at least the minimum wage and outline the schedule for regular pay.
- Hours of Work: Clear definitions of standard hours are required to ensure compliance with legal limits on hours of work.
- Overtime: Provisions regarding eligibility for overtime pay must meet federal standards.
- Time Off: The contract must account for statutory entitlements regarding vacation time, vacation pay, and general holidays.
- Protected Leaves: Employees are entitled to various protected leaves (e.g., personal leave, medical leave). While the contract doesn’t need to list every single leave, it cannot restrict access to them.
- Termination Rights: The agreement must respect statutory rights regarding termination of employment (notice and severance).
If the worker reports to a schedule and follows employer directions, they are likely an employee entitled to the standards listed above.
Discretionary Provisions (Optional Benefits)
Contrary to common misconceptions, not all benefits are mandated by employment standards legislation. While the following are frequently included in indefinite contracts to attract talent, they are generally not required by federal labour standards:
- Employer-Sponsored Pension Plans: While employers must contribute to the statutory Canada Pension Plan (CPP), offering a private company pension or RRSP matching program is a discretionary term of the contract, not a labour standard requirement.
- Supplemental Health Insurance: Private coverage for dental, vision, or prescription drugs is a matter of contract negotiation or company policy, not a statutory right.
- Bonuses and Commissions: Unless specified in the employment agreement, these are generally not mandated by basic labour standards.
An indefinite contract must meet the minimums for wages, hours, leaves, and termination as set by the government. It may include pension plans and private health benefits, but these are not legal obligations under federal labour standards.
How to Terminate an Indefinite Contract in Canada
Terminating an indefinite employment contract in Canada is not a one-size-fits-all process. Before taking action, employers and employees must first determine which legal jurisdiction applies to their workplace: Federal or Provincial.
Applying the wrong set of laws, such as using provincial standards for a federally regulated employee, can lead to incorrect termination procedures, miscalculated severance, and legal liability.
Once jurisdiction is confirmed, employers must determine whether the termination is with cause or without cause.
Termination With Cause
Employers can terminate an indefinite contract without providing notice or severance if there is “just cause”.
Termination for cause 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.
Federally Regulated Employees:
Notice periods are dictated by the Canada Labour Code. Employers must consult the Code to determine the specific notice weeks required based on the employee’s years of continuous service.
Provincially Regulated Employees:
Notice periods are dictated by provincial employment standards. Below is a general example of notice periods often seen in provincial legislation:
| Employee Tenure | Typical Provincial Notice Period (Example) |
| 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 |
Common law entitlements often exceed these statutory minimums in both jurisdictions. Always review the specific employment contract.
Employee Resignation
Employees resigning from an indefinite contract must provide written notice.
Under both federal and provincial guidelines, the specific amount of notice required is usually outlined in the employment contract or determined by common law, typically ranging from 2 to 4 weeks.
Constructive Dismissal
In both federal and provincial jurisdictions, 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 pay as if they were terminated without cause.
Alternatives to Indefinite-Term Employment Contracts in Canada
Beyond the standard indefinite-term employment contract, Canadian employers have four flexible contracting alternatives available to address temporary, project-based, or fluctuating staffing needs, including:
- Fixed-term contracts: Hiring short-term workers 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 contracts: Using zero-hour contracts allows 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.
