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As an employer, you may not always choose to employ staff on an ongoing, permanent basis. Often, it will be appropriate for you to set a date on or by which the contract will end. This article explains the differences between a fixed and maximum term contracts, and identifies the circumstances in which each may be useful to your business.

Key Differences

The following table identifies four major differences between fixed and maximum term contracts.

 

Fixed Term Contract Maximum Term Contract
Length of Term The employment contract clearly identifies the start date and end date. Rather than a fixed end date, the contract ends by a ‘sunset’ date.
Early Termination Neither employer nor employee can terminate the agreement earlier than the finish date. The employer and employee can terminate the agreement earlier than the ‘sunset’ date.
End Date The parties agree that the contract will end on the finish date. No notice of termination is required. The parties agree that the agreement will not necessarily last for the full term of the contract. Notice of termination is required if the agreement ends before the full term.
Liability for Early Termination If the contract is terminated before the termination date, the terminating party may be liable to pay the balance of the contract to the other. No additional liability applies beyond contractual and statutory obligations.

 

Which is Right For You?

A fixed term contract may be more appropriate when you require specific employee for a specific role and for a specific time. For example, say you have acquired a tender with an international business and you need a multilingual executive for the period of the tender. 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.

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 a period of probation;
  • 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.

 

Tip: When using a fixed term contract, ensure it is clear in the employment agreement and hiring discussions that the contract has an end date. Remember that the expectations of parties are important if a dispute arises.

 

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, the law changed 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; and
  • an employee can bring an unfair dismissal claim under a maximum term contract.

Determining Whether the Contract Has Ended

Cases like Khayam highlight the importance of knowing whether a maximum term employment contract has truly ended or not. Some points that the Fair Work Commission will consider in determining this question include:

  1. Has the employment relationship ended? Does the employer no longer need the employee’s services? Is there no continued expectation of work?
  2. If the employee did not agree to the termination, did the employer do anything to substantially contribute towards the termination?
  3. 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.
  4. 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.

Key Takeaways

You can use fixed and maximum term contracts to manage your business’ needs. However, employers should not use them to circumvent an employee’s right to bring an unfair dismissal claim.

If you need advice in determining the best way to engage your workers, contact LegalVision’s employment lawyers today on 1300 544 755, or fill out the form on this page.

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