What exactly is a fixed term contract worker?

A fixed term contract worker is employed for a specific period of time or task, such as a 12-month contract where employment commences on 1 January 2022 and concludes on 31 December 2022, or at the conclusion of a project. These types of workers are different to permanent employees who instead, are employed on an ongoing basis until the employer or employee ends the employment relationship.

Fixed term contract employees are usually full-time or part-time workers and are generally entitled to the same wages, penalties and leave as permanent employees, taking into consideration that an award or registered agreement may provide additional provisions for a fixed term contract worker.

What are the benefits of employing fixed term contract workers?

Fixed term contract workers can be greatly beneficial to business owners during times of economic uncertainty. Employers are able to hire workers for a set period of time so that the immediate needs of the business are met without the long-term commitment or costs associated with permanent workers.

Fixed term contract workers provide business owners with a level of confidence when long-term work is not guaranteed such as during COVID-19, can support the roll out of new projects, and even cover durations when a permanent employee is absent from work for an extended period of time such as maternity leave or long-term illness.

What happens at the end of a fixed term contract?

At the end of a fixed term contract, there is no requirement for an employer to give notice to or pay redundancy pay to the employee provided they continued in their position up until the specified end date. At the conclusion of a fixed term contract, the employment relationship has ended and there are no further obligations required from either party.

What if I want to end the fixed term contract of an employee early?

If an employer wishes to end a fixed term contract before the specified end date, the employer will be required under common law to pay the balance of the contract. In addition, the worker may also have statutory unfair dismissal rights and redundancy pay rights. In the instance that the employee wishes to terminate a fixed term contract early, similarly, the worker may be liable for damages to the employer.

What can employers do to minimise this type of risk?

Including relevant provisions within the contract to mitigate this type of risk is essential. Managers need to ensure that any clause clearly states that no penalties will be incurred if the contract is forced to end early.

Another solution is to include an early termination clause in the fixed term contract allowing the contract to be terminated on notice before the specified end date. This changes the contract into an outer limit or maximum term contract which means that instead of a worker being employed “for” a specified period of time or date, the worker is instead employed “up to” the same duration.

If the full term is worked, there is no need for notice and the employee has limited rights in relation to unfair dismissal or redundancy pay. An outer limit or maximum term contract may be beneficial for business owners in that it can be terminated at an earlier date by the employer without having to pay the full balance of the contract.

The downside is that the worker may have rights in relation to unfair dismissal if they have served the required minimum employment period under specific employment legislation. Annual and personal leave entitlements will also accrue under both fixed and outer limit contracts.

What if I want to extend the fixed term contract for my worker?

This can be done but a further fixed term contract should be offered before the end of the original fixed term. If this is not done, then there is a danger that the employment may become “permanent in nature” if an employee were to continue to work beyond the end of a fixed term without an extension in place. Additionally, a series of “rolling” fixed term contracts may be regarded as permanent employment over time.

It’s important to remember that fixed term or outer limit contracts should be used for specific tasks or projects and should not take the place of permanent employment. The use of casual or fixed task or seasonal employees can also be considered.

As a business owner, it’s important to minimise any exposure by understanding your legal obligations to your workers. If you’re considering introducing fixed term contracts in your business and require assistance, our team of highly skilled HR professionals can help.

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