Permanent, Casual Fixed-Term and Maximum-Term Employment: Pros And Cons for Employers

As an employer, you may not always need to employ staff on a permanent basis. Rather, it may be more appropriate for you to engage employees on a casual basis or until a set date. Upon this date, the employment will come to an end. Accordingly, it is important to understand the different types of employment as an employer. Once you decide this, you need to outline your employment conditions in an employment contract. In this article, we consider which employment contract is most appropriate for you and your employee’s employment arrangement.

Casual Employment

It may be appropriate to engage your employee on a casual basis where you:

• require your employee to fill a temporary labour gap; or
• are unable to predict their hours due to fluctuating operational requirements.

This will allow you greater flexibility throughout your employee’s employment. Also, it will minimise your obligations in relation to terminating their employment. As such, a casual employment contract should confirm that:

• your employee has no guarantee of ongoing or regular work; and
• you do not need to provide notice of termination.

Casual employees are not entitled to paid leave entitlements. However, they are entitled to a casual loading (usually 25%). This can result in higher payroll costs than permanent engagements. In addition, where your casual employees work regular and systematic hours, they may also be entitled to request that their employment be converted to a permanent engagement. To do so, however, they must meet the criteria set out in any applicable industrial instrument (such as a modern award or enterprise agreement). As such, it is important that you regularly review your casual workforce to check:

• what hours employees are actually working; and
• how regularly employees work these hours.

Getting it wrong can cost you. Recent decisions from the courts have ordered that casual employees who were, in substance, permanent employees receive back payment of the entitlements they did not receive.

Permanent Employment

You may wish to engage your employee on a permanent basis (whether that be full-time or part-time) where you:

• require an employee to work on an ongoing basis; and
• are able to predict in advance the hours that the employee will need to work.

Permanent employees are entitled to paid leave entitlements (such as annual leave and personal leave) when they are absent from work. Also, permanent employees have much more job security. This often results in permanent employees having more motivation to perform and contribute to the future success of your business.

However, permanent employment contracts:

• do not have an end date; and
• will continue to apply until your employee’s employment terminates (whether this be via resignation or dismissal).

As such, this type of employment contract will not be suitable if you only require your employees to work on a temporary basis. There are also obligations with regards to notice of termination. As a result, the process towards termination can be more complex.

Fixed-Term Employment

Unlike permanent employment, you only employ a fixed-term employee until a set date. That is, a fixed-term employment contract will contain a commencement date and an end date where the employment will automatically cease. For this reason, you may wish to use fixed-term contracts when you engage an employee to fill a temporary role, such as:

• maternity leave cover; or
• to help out with a large project for a specified period of time.

At the expiry of the fixed-term, you will also be exempt from unfair dismissal claims if you no longer require the employee’s services. The contract was for a specified period and simply terminates by the passing of time at the end of the fixed-term. Employees under a fixed-term contract will have the same rights as permanent employees in relation to:

• leave entitlements; and
• benefits under any applicable Industrial Instrument.

However, the main characteristic of a fixed-term contract is that both you and the employee agree to continue the employment arrangement for the entire fixed-term specified in the agreement. As such, if you need to terminate your employee before the expiry of the fixed-term, you can still risk exposure to a potential claim. This could be:

• an unfair dismissal claim; or
• a claim that you pay the employee the rest of the balance of the term.

Maximum-Term Employment

Similar to a fixed-term employment arrangement, a maximum-term or “outer limit” contract also has a date on which the employment will end. However, unlike a fixed-term contract, a maximum-term contract also gives you and your employee the right to terminate the employment prior to the end date by giving notice to the other. Employers commonly use maximum-term employment contracts because of the flexibility they offer in relation to termination.

Many employers believe that employees on contracts for a specified period of time do not have the ability to make an unfair dismissal claim upon expiry of the contract. The rationale behind this was that the employment had come to an end due to the passing of time, rather than at the initiative of the employer. However, recent case law suggests that if a maximum-term contract gives either you or your employee an unqualified right to terminate the contract on notice (or payment in lieu of notice), it will not be a contract for a specified time. As such, you should always:

• exercise caution when employing employees under maximum-term contracts; and
• consider limiting early termination clauses to mitigate the risks of a successful claim for unfair dismissal.

Key Takeaways

As an employer, it is important that you understand the different types of employment so that you can choose the arrangement that is most appropriate for you and your employees. The different ways you can engage an employee have implications for how you pay your employees, which benefits they are entitled to and how their employment may come to an end. If you need assistance preparing an appropriate employment contract to reflect these arrangements, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

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