Sometimes employers want to hire an employee for a short or specific amount of time. This could be for a short-term project or for work that is seasonal in nature. In these cases, it is important to know what kind of employment contract is best for the situation.

Employers will generally have two options – fixed term or maximum term contracts. We explain the differences between each as well as the advantages and disadvantages that come with them.

Fixed-Term Contract

A fixed-term contract means both parties agree that the employment will last for a specified period of time with a fixed start and finish date in the contract. One of the main features of this employment contract is that both parties have relinquished the right to terminate employment without a proper reason or cause.

However, sometimes an employer may have the right to terminate employment on specific grounds, such as serious misconduct or poor performance occurring for a certain period of time. Outside of these specific grounds for early termination, both parties assume the employment relationship will last for the period outlined in the contract.

Advantages

  • Useful for temporary work or to cover another employee’s parental or long service leave
  • Option not to renew the contract once it ends, meaning there is no risk of an unfair dismissal claim, or redundancy pay claim
  • Employees under this contract are excluded from some entitlements under the National Employment Standards, such as redundancy pay

Disadvantages

  • Unless agreed upon by both parties, or in cases of serious misconduct or incapacity, a fixed-term contract is unable to be terminated before its nominated expiry date
  • Employers may be liable under unfair dismissal provisions if the employee has had several fixed-term contracts renewed and has a reasonable expectation that they would continue to be renewed

It is also important to note that employees who have had a long-term relationship with their employer through multiple, consecutive fixed-term contracts are likely to be regarded as permanent employees by the Fair Work Commission. This means that they may be entitled to redundancy and termination notice under the National Employment Standards.

When a fixed-term contract is deemed appropriate, employers should consider limiting it too a modest time period where possible. They should also ensure appropriate safeguards are included in the formal contract, including termination for misconduct, incapacity or poor performance.

Maximum-Term Contract

Like a fixed-term contract, a maximum-term contract specifies a date on which both parties agree employment will end. Unlike a fixed-term contract, however, both parties have the right to terminate employment without cause or a reason by giving an agreed amount of notice.

Advantages

  • Has all the advantages of a fixed-term contract with the added ability to terminating the contract prior to the nominated expiry date.
  • Flexibility for both parties

Disadvantages

  • Employees can lawfully terminate the contract for any reasons within the nominated term.
  • Has all the disadvantages of a fixed-term contract including a requirement to provide entitlements in long-term relationships and being subject to unfair dismissal claims if terminated before the end of the term.

The Fair Work Commission keeps a watchful eye over employers who try to use these contracts to avoid complying with the National Employment Standards. A well-written contract that is appropriate for the circumstances is the key to a successful employment relationship.