Summary
- Fixed-term contracts require employees to work a set period with no early termination provisions, whilst maximum-term contracts allow either party to end employment before a nominated sunset date, subject to notice requirements.
- Following the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, employers are restricted from using fixed or maximum-term contracts exceeding two years, allowing renewal beyond two years, or engaging employees on consecutive contracts for substantially similar work, with limited exceptions.
- Employers using rolling term-based contracts risk unfair dismissal claims if employees develop reasonable expectations of ongoing employment, as the Fair Work Commission will consider the entire employment relationship rather than individual contracts in isolation.
- This article is a guide to fixed-term and maximum-term employment contracts for employers in Australia, explaining key differences, legal restrictions, and unfair dismissal risks following 2022 legislative reforms.
- LegalVision is a commercial law firm that specialises in advising clients on employment law and workplace relations matters.
Tips for Businesses
Clearly state in employment agreements that no guarantee of further employment exists beyond the contract term. Avoid renewing term-based contracts multiple times for the same role. Review whether your contracts fall within the two-year limit or qualify for an exception under the amended Fair Work legislation.
On this page
- What is Fixed Term Employment?
- What is Maximum Term Employment?
- What Are the Differences Between Fixed-Term and Maximum-Term Employment Contracts?
- What Contract is Right For Your Business?
- Fixed and Maximum Term Contracts and Unfair Dismissal
- Determining Whether the Contract Has Ended
- What Are the Changes to Fixed-Term and Maximum-Term Employment Contracts Law?
- Key Takeaways
- Frequently Asked Questions
Not all employment needs are permanent, and fixed-term or maximum-term contracts can give your business the flexibility to hire for a set period. However, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (the Act). has placed new restrictions on how and when you can use these contracts. To ensure you comply with the law when onboarding new employees, this article explains:
- the differences between fixed-term and maximum-term employment;
- the contracts that govern these employment relationships; and
- in what circumstances either option may be useful to your business consistent with the amendments to the Act.
What is Fixed Term Employment?
Employers typically hire fixed-term employees to carry out work for a set period. Additionally, a fixed-term employee must work the entire nominated period, as there are generally no provisions that allow for termination before the end date by either party.
Hence, if you want employees to carry out a specific project within an identifiable time frame, fixed-term employment is probably the most appropriate option for your business.
What is Maximum Term Employment?
While maximum-term employment has many similarities with fixed-term employment, the key difference between the two employment relationships is that you or the maximum-term employee can terminate the relationship before the specified end date, subject to any notice period in the contract.
Continue reading this article below the formCall 1300 544 755 for urgent assistance.
Otherwise, complete this form, and we will contact you within one business day.
What Are the Differences Between Fixed-Term and Maximum-Term Employment Contracts?
The following table compares the critical components of fixed-term and maximum-term contracts.
| Fixed Term Contract | Maximum Term Contract | |
| Length of Term | The employment contract identifies the start date and end date. | The contract ends by a ‘sunset’ date rather than a fixed date. |
| Early Termination | Employers and employees can only terminate the contract at the specified end date. | The employer and employee can terminate the contract before the ‘sunset’ date, subject to any notice provisions outlined below. |
| End Date | The employer and employee agree that the contract will end on the finish date. Notice of termination is not required. | The employer and employee agree that the contract will only sometimes last for part of the term. However, a notice of termination is required to end the contract before the nominated ‘sunset’ date. |
| Liability for Early Termination | If the contract is terminated before the termination date, the terminating party may be liable to pay the remaining balance of the contract to the other party. | No additional liability applies beyond contractual and statutory obligations. |
What Contract is Right For Your Business?
A fixed-term contract may be more appropriate when you require a specific employee for a specific role and for a specific time. For example, consider you have acquired a tender with an international business and you need a multilingual executive for the period of the tender. In that case, a fixed-term contract may be useful here to ensure that the executive stays in their role until the end of the tender to complete their job. Alternatively, you may need to replace an employee who is taking long service leave.
On the other hand, a maximum-term contract may be better in situations where you wish to:
- assess the skills, experience or cultural fit of an employee and place them on probation period;
- engage the employee for a certain season but want the flexibility to end employment if the season ends early; or
- offer an apprenticeship or traineeship.
Fixed and Maximum Term Contracts and Unfair Dismissal
Historically, an employee engaged on a maximum-term contract could not bring an unfair dismissal claim when their contract expired. This was because the termination occurred in line with the date set in the contract and not at the employer’s initiative.
However, this idea was reconsidered in December 2017 in the case of Khayam v Navitas English. The Fair Work Commission found that, in certain circumstances, engaging an employee on a series of fixed or maximum-term contracts may imply permanency or an ongoing employment relationship.
This case demonstrated that although there may be a legitimate reason why an employee is engaged on successive maximum-term contracts, it is important that an employee’s expectations of ongoing work are managed. To avoid an unfair dismissal claim, it is critical that the employment agreement is drafted such that the employee is clear that there is no guarantee of further employment. The more times a maximum-term contract is renewed, the harder this will be to demonstrate. In this case, the court determined that the entire employment relationship will be considered, rather than just the employment contracts themselves.
Determining Whether the Contract Has Ended
Cases like Khayam highlight the importance of knowing whether a fixed or maximum-term employment contract has truly ended or not. Some points that the Fair Work Commission will consider in determining this question include:
- Has the employment relationship ended? Does the employer no longer need the employee’s services? Is there no continued expectation of work?
- If the employee did not agree to the termination, did the employer do anything to substantially contribute towards the termination?
- Even if both parties agreed to terminate, was the employer actually the driving force in the termination? This may give rise to an unfair dismissal claim.
- Even if the parties did agree to terminate the contract early, the Commission may look at additional factors, including whether:
- the parties fully understood or comprehended the contract;
- the contract contains all the terms agreed to by the parties; and
- the contract is in alignment with the terms of a relevant award or enterprise agreement.
These considerations indicate that the Commission will review the entirety of the contractual relationship when determining whether an employee on a rolling ‘term-based’ contract is entitled to bring an unfair dismissal claim.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
What Are the Changes to Fixed-Term and Maximum-Term Employment Contracts Law?
The Act seeks to restrict employers from using fixed-term and maximum-term employment contracts where:
- the contract’s term exceeds two years;
- the contract allows for renewal that would see the term exceeding two years; or
- there are consecutive contracts for the employee to perform the same or substantially similar work.
Notably, there are exceptions where your business can use fixed or maximum-term contracts, such as where:
- the relevant employee earns over the high-income threshold;
- a modern award permits it;
- the employee works in a governance role;
- the role requires specialised skills to complete specific tasks;
- you are hiring for seasonal work or to fill a temporary absence;
- you are using government contracts; or
- the contract is part of a specific training arrangement.
Key Takeaways
As an employer, it might be the case that it is more suitable to hire an employee for a fixed period of time. In such cases, fixed and maximum-term employment contracts might be suitable options for you. Some key things to note about these types of contracts is that:
- a fixed-term contract may be suitable where you require a specific employee for a specific role and for a specific time;
- a maximum-term contract may be better in situations where you wish to maintain flexibility about engaging the employee; and
- both contracts are based on the agreement ending on a specific date or upon a specific event.
If you need assistance understanding the difference between fixed and maximum-term employment contracts, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced employment lawyers help businesses across industries manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
The major differences between fixed and maximum-term employment contracts lie in the length of the employment term, the ability to terminate the agreement early, the end date of the agreement and liability for early termination. Overall, maximum-term employment agreements provide much more flexibility for both employer and employee.
A fixed-term contract may be appropriate when you require a specific employee for a specific role and for a specific time, such as if you have a staff member taking an extended period of leave. On the other hand, a maximum-term contract may be better in situations where you wish to maintain more flexibility about hiring the employee. The best option for you will depend on the unique circumstances of your business.
Clearly draft employment agreements stating no guarantee of further employment exists. Carefully manage employee expectations around ongoing work, particularly when renewing contracts multiple times, to avoid implying a permanent employment relationship.
Exceptions include employees earning above the high-income threshold, roles requiring specialised skills, seasonal work, temporary absence cover, government contracts, specific training arrangements, and positions permitted under modern awards.
We appreciate your feedback – your submission has been successfully received.
