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, and how they cannot be used in lieu of a permanent contract.

What is a fixed-term contract?

A fixed-term contract means that 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, however, is that both employer and employee agree to give up the right to terminate the contract without proper cause or grounds to do so. There is an agreement between both parties to continue the employment arrangement for the entire term specified in the agreement, unless any of these 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 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 employment contracts

Those employees that are employed under contracts with fixed terms are typically excluded from the National Employment Standards entitlements, such as 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.

If both the employer and employee agree that the contract will come to an end on a certain date or after a certain event happens (which is what happens with both fixed and maximum-term contracts), 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 National Employment Standards entitlements (redundancy and notice). The termination (or rather the employer) would not be liable to a claim of unfair dismissal under the Fair Work Act.

What are the Exceptions?

There are, however, certain exceptions to this rule, whereby employers will be liable to the unfair dismissal provisions. For example, if the employee has reason to believe that, based on his past experiences with his employer and the number of previous renewals the employer has granted the employee, the fixed-term will be extended, failure to extend may lead to you initiating termination.

Permanent Employees – Don’t Use Fixed Term Contracts!

Some sneaky employers have caught on to the fact that employees subject to fixed term contracts do not have the same entitlements as their permanent counterparts, and attempted to employ what are in fact permanent staff on a series of consecutive fixed term contracts. Note the Fair Work Commission has seen this many times, and will deem the relationship permanent if it is of the view that there was an expectation, based on past events, that the employment relationship would continue.

In addition, if you hired the employee on a fixed-term basis purely to avoid having to comply with the National Employment Standards for redundancy and notice, the exemption under section 123(2) of the Fair Work Act will not apply.

Conclusion

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 on 1300 544 755.

Emma Jervis

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