If you are considering hiring an employee for a specific period of time, you need to ensure you use the right contract. This will typically be either a fixed-term or maximum-term employment contract. If you don’t carefully draft the terms of this contract, you could risk breaching it and facing an unfair dismissal claim. This article will explain the difference between fixed-term and maximum-term contracts and what you need to include in each. 

What Are Fixed-Term and Maximum-Term Contracts?

If you choose to employ someone for a specific period of time, you will need to hire them under a fixed-term or maximum-term employment contract.

For example, you may choose to engage an employee to replace someone who is on parental leave. Here, you will need a fixed-term or maximum-term contract.

The critical difference between these contracts and permanent contracts relates to how you can terminate employees. Under a permanent contract, you or the employee must provide notice upon termination. Under a fixed or maximum-term contract, the employment will end without either needing to give notice to the other. The 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 required to do so.

The difference between a fixed-term contract and a maximum-term contract also relates to requirements surrounding termination. 

During the term of a maximum-term contract, both you or your employee can terminate the employment after providing notice. 

However, during the term of a fixed-term contract, neither party can terminate the employment earlier than the specified time period. Here, if you ended the employment, the employee may be entitled to the wages they would have earned for the full period of their employment. But, if your employee leaves their job, you can claim compensation from them.

Drafting Termination Clauses

Termination clauses in employement contracts specify how either you or your employee can end the employement relationship. 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 terminate the employee if the working relationship is unsuccessful.

There are specific minimum notice periods which allow you to swiftly terminate employees if they are performing poorly. However, you may wish to increase it 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 
  • vary the terms of the original fixed or maximum term agreement.

How Long Are the Probation Periods?

In regular permanent employment contracts, a probation period is a time where both you and the 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

When engaging an employee for a short period of time, it’s crucial to have an employment contract that reflects the true nature of the relationship. You will need to ensure that the contract reflects your intention for how long you wish to hire the employee. Further, each contract will have different notice and probation periods, so you will need to consider how these will affect your employment relationship. If you have any questions about engaging an employee under a fixed or maximum-term contract, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

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