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What is a Fixed Term Employment Contract?

Fixed term employment agreements are used for work confined to the duration of a specific task or project.

The contract operates for the specific period of time specified by the parties. When the agreed end date is reached, the contract will automatically expire without either party needing to terminate it.

This type of agreement can be useful if funding is available for a limited time or if a project is of a finite duration. For example, an employee engaged for an interior design project will complete their term of employment when that project is completed. If a project is abandoned or discontinued, any fixed term employment contract linked to its completion needs to include this contingency as an additional trigger for termination.

Consequences of expiry

Employers need to be aware of how they intend to employ an employee if a fixed term contract is used. It is not feasible for a fixed term contract of employment to operate for a period of 5 years, which can be terminated by either party with 30 days notice. This is not a fixed term agreement. The best way to approach a lengthy fixed term agreement is to ensure the contract can be terminated before the expiry date stipulated in the contract by one party giving the other a specified period of notice.

If the employee works beyond the expiry date without a new fixed term agreement in place, it will be legally interpreted that the parties have agreed to indefinite employment. This means the employer will be required to give ‘reasonable notice’ in order to terminate the new contract.

It is also important for employers to be aware (although it is not often the case), that it might not be possible to use fixed term contracts for certain categories of work if they are regulated by an award or enterprise agreement.

Premature termination

Apart from termination due to breach or misconduct, a fixed term contract must operate for the whole period agreed to by the parties. If a party ends a fixed term contract prematurely that party becomes liable for breach of contract and the damages would be for the unexpired term of the contract. The concept of ‘reasonable notice’ therefore is not relevant to fixed term.

Unfair dismissal

Unfair dismissal claims are not open to employees under federal jurisdiction engaged on fixed term contracts (see s 386(2)(a) of the Fair Work Act 2009 (Cth)).

The Australian Industrial Relations Commission, however, has considered cases in which a series of fixed term contracts has been indicative of a continuing employment relationship, as opposed to a fixed term engagement. The capacity of an employee to demonstrate indefinite terms of employment does give rise to the possibility of making a claim for unfair dismissal.

If an employee on a fixed term, fixed task or seasonal contract is not re-hired at the end of their engagement, they will not have been ‘dismissed’ and will not be eligible to claim for unfair dismissal. On the other hand, if their employment is terminated in the middle of their contract, a claim for unfair dismissal is potentially open to them (see Part 3-2 of the Fair Work Act 2009 (Cth)).

National system employees, in particular, are eligible to bring an unfair dismissal claim, if they have completed a minimum period of employment. The legislation does acknowledge the special position of smaller employers, however, exclusions that were in place under the previous legislative regime (Work Choices) have been removed.

Ensure your fixed term employees are aware of their employment status and avoid any missunderstanding by defining each parties rights with a Compliant Fixed Term Employment Agreement. Kits available here

 

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