Fixed-Term Contract Versus Maximum-Term Contract

Monday June 28, 2021

As a business owner, you may not always employ staff on an ongoing, permanent basis. On occasion, you may decide to employ staff on either a fixed-term or maximum-term contract, particularly if you want to specify when a contract is to end. However, implementing such contracts can be complicated, especially if you’re unclear about the distinction between fixed-term contracts and maximum-term contracts.

A fixed-term contract:

  • Is ideal when you require a specific employee for a specific role for a set period of time
  • Clearly identifies the start date and end date
  • Cannot be terminated early, either by the employer or employee
  • Requires no notice of termination
  • Incurs a liability for early termination

A maximum-term contract:

  • Is ideal for assessing the suitability of an employee, or if you are unsure when a project may end
  • Ends by a certain date, rather than on a certain date
  • Can be terminated early
  • Requires notice of termination
  • Has no additional liability for early termination, although contractual and statuary obligations still prevail

Fixed-term employment contracts are used for specific tasks or projects. The contract operates for the specific period of time specified by the employer and the employee. When the end date is reached, the contract automatically expires without either the employer or employee needing to terminate it.

However, it’s important to note that if the employee works beyond the expiry date without a new fixed-term contract in place, it will be legally interpreted that the parties have agreed to indefinite employment.

Maximum-term contracts allow for the employment of an employee for a particular period of time, with the flexibility to terminate the contract, provided notice is given. Maximum-term contracts are useful for project- or seasonal-based work.

Fair Work Commission

Importantly, the Fair Work Commission says that allowing a maximum-term contract to expire does not exempt an employer from an unfair dismissal claim. The FWC formulated a five-point test around maximum-term contract unfair dismissal claims:

  1. Has the entire employment relationship ended?
  2. If the employee has not voluntarily left the employment relationship, has an action by the employer been the principal contributing factor in the termination?
  3. Have the parties to the contract agreed on both the contract ending at the expiry of its term as well as the employment relationship terminating?
  4. Is there a genuine contractual agreement that the employment relationship will end on a specified date and has the employment come to an end on that date?
  5. Are there any other relevant factors that need to be considered beyond the terms of the contract?

Given these five points from the FWC, it’s vital that employers implement watertight maximum-term contracts. The HR Dept can help you ensure your contracts are fair and correct – for both employers and employees. If you’d like additional advice or training on boosting employee engagement in your workplace, get in touch with the HR Dept. We can help!

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