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As an employer, you will occasionally need to hire staff for a specific period, such as the holidays. If so, using the right contract is essential, and this will typically be either a fixed-term or maximum-term employment contract. If you do not carefully draft the terms of this contract, you risk breaching it and potentially facing an unfair dismissal claim. This article will explain the difference between fixed-term and maximum-term contracts and what you should include in each. 

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What Are Fixed-Term and Maximum-Term Contracts?

As stated, fixed-term or maximum-term employment contracts are ideal when you are only looking to hire staff for a specific period. The key difference between these contracts and permanent contracts lies in how you can terminate employees. Under a permanent contract, you must give adequate notice to your employee on termination, and vice versa if the employee wishes to resign. However, under a fixed or maximum-term contract, the employment will end without either needing to give notice to the other. Your employee could simply not turn up to work after the end date. You may want to remind the employee that they will be finishing up shortly, but you are not legally required to do so.

Fixed-Term vs Maximum-Term Contracts

As stated earlier, the primary difference between a fixed-term contract and a maximum-term contract lies in the requirements surrounding termination. During a maximum-term contract, either you or your employee can terminate the employment with notice without penalty.

However, in a fixed-term contract, both parties can expect employment for the specified term. This means that if you were to terminate an employee’s fixed-term contract early, the employee would be entitled to seek an unfair dismissal claim. However, employees who have served the threshold employment period would not be able to make an unfair dismissal claim. This threshold employment period is: 

  • 6 months; or 
  • 12 months for small businesses. 

If you want to terminate an employee’s fixed-term employment contract earlier than the specified period, they may be entitled to wages they would have earned if they had completed the full period of their employment. On the other hand, if your employee leaves their job early, you may be entitled to compensation for their breach of contract. An example of this is if your employee were to deduct their notice period from their remaining annual leave.

In certain instances, you can legitimately terminate an employee’s role based on their employment contract. The most common reasons for the termination will be:

  • misconduct;
  • poor performance; or 
  • breach of contract.

Further, the position may become redundant. In that case, you will owe your employee redundancy pay.

Drafting Termination Clauses

Termination clauses in employment contracts specify how you or your employee can end the employment period. When providing a fixed or maximum-term contract, you should carefully consider how to word the termination clause. 

First, you need to consider whether you wish to engage a fixed-term or maximum-term employee. A maximum-term employment contract gives you more flexibility to end your engagement with the employee if the working relationship is unsuccessful.

There are specific minimum notice periods that allow you to swiftly terminate employees if they perform poorly. However, you may wish to increase the time period to give you more time to find a replacement should the employee choose to terminate.

Period of Continuous Employment

Minimum Notice Period

One year or less

One week

One year to three years

Two weeks

Three years to five years

Three weeks

Over five years

Four weeks

When considering which minimum notice period to apply, you should account for any previous periods of employment. 

For example, you can employ someone to replace a team member on parental leave for a year. If you then extend this employment for six months, their notice period would be two weeks.

Further, you must provide employees over 45 years old who have been employed for two years with an additional week of notice. If you plan to extend the employment of a fixed or maximum term employee, you must either:

  • issue the employee with a new employment contract; or
  • rework the terms of the original fixed or maximum term agreement.

How Long Are Probation Periods?

In regular permanent employment contracts, a probation period is a time when both you and your employee can assess the success of the new working relationship. It generally gives both parties the right to terminate the employment with less notice than is required after the probation period. 

For example, you can terminate your employee’s contract with one week’s notice during a six month probation period, and with four weeks’ notice after the probation period.

You are less likely to need a probation period within fixed-term and maximum-term contracts, especially where the length of the employment is relatively short. Here, you will have less time to adequately assess an employee’s performance, so a probation period might not be necessary. 

Key Takeaways

If you are considering hiring an employee for a specific period of time, you must ensure you use the most appropriate contract. This will typically be either a fixed-term or maximum-term employment contract. Some key things to consider when drafting fixed-term contracts include:

  • the proposed period of employment;
  • termination clauses; and
  • probation periods.

If you need assistance preparing employment contracts, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What are fixed-term and maximum-term contracts?

In some cases, you will need to hire an employee for a specific period of time. For example, this might be the case if you need to replace an employee on parental leave. In such circumstances, you will need to hire them under a fixed-term or maximum-term employment contract. The primary difference between a fixed-term contract and a maximum-term contract relates to the requirements surrounding termination. 

What should I look for in my fixed-term contract?

If you are considering hiring an employee for a specific period of time, you must ensure you use the most appropriate contract. Some key things to consider when drafting a fixed-term contract include the period of employment, termination clauses and whether you should include a probation period.

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