Sometimes, employers look to hire people for short or fixed periods of time. For example, a shopping centre Santa would be pretty useless in June. In this article, we consider which employment contract is most appropriate for you and your employee’s employment arrangement. For this reason, it is important to understand the difference between a fixed-term contract and a maximum term contract.

What is a Fixed-Term Contract?

A fixed-term contract is one where the employment will continue until an agreed date. The term is fixed in that it has a start and a finish date inserted into the employment contract.

Sometimes a fixed-term contract will include an employer’s right to terminate the employment contract on certain grounds. A good example of a ground for termination in a fixed-term contract might be:

“If you fail to take steps to remedy unacceptable performance in less than one week of being notified of your underperformance, the Company may terminate your employment contract immediately.”

The main characteristic of a fixed-term contract is that both employer and employee give up the right to terminate the contract without proper cause. There is an agreement between both parties to continue the employment arrangement for the entire term specified in the agreement. This can only be changed if the grounds for termination allow the parties to end the contract early.

What is a Maximum-Term Contract?

Similar to a fixed-term employment contract, a maximum-term contract also has a ‘sunset’ date on which both parties agree that employment will end. The primary distinction between the two work arrangements is that both parties to a maximum-term contract may still terminate the agreement with notice or reason. The parties do not necessarily anticipate that the employment relationship will endure the full term of the employment contract.

How to Terminate Employees on Fixed or Maximum-Term Contracts

Employees that are employed under contracts with fixed terms are typically excluded from the National Employment Standards entitlements. These include notice and redundancy requirements under the Fair Work Act.

Nevertheless, employers who wish to terminate employees before the fixed date will need to do so in accordance with the early termination provisions to avoid breaching the employment contract.

In some circumstances, both the employer and employee agree that the contract will come to an end on a certain date or after a certain event happens. Therefore, the termination of the employment will not be as a result of either parties performance, but of the contract itself. This means that the termination of the contract would not bring about notice requirements or redundancy payouts. The employee would not be able to a claim of unfair dismissal under the Fair Work Act.

What are the Exceptions?

There are, however, certain exceptions to this rule, where employers will be liable to the unfair dismissal provisions.

For example, an employee may have reason to believe that a fixed-term will be extended. If so, failure to extend may lead to a claim of unfair dismissal. However, the employee’s belief needs to be based on reasonable grounds. These may include their past experiences and the number of previous renewals they have been granted.

Permanent Employees

Some employers have exploited that employees under fixed-term contracts don’t have the same entitlements as their permanent counterparts. Subsequently, they attempt to employ permanent staff on consecutive fixed-term contracts. If this occurs, the Fair Work Commission may deem the relationship permanent. This happens when there was an expectation, based on past events, that the employment relationship would continue.

Key Takeaways

It is important that you understand the different employment contracts that exist so that you can choose the one that is most appropriate for you and your employees. If you need assistance in reviewing or drafting your employment contracts, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Emma Jervis
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