Fixed term contracts, or time-limited contracts as they are also known, may be an increasingly viable option for employers in the current COVID-19 environment. As we explain in this blog, employers must be wary of the hidden termination risks created by these engagements in the context of unfair dismissal claims.
What are they?
Fixed term contracts are arrangements which limit the duration of an individual’s employment. They are categorised either by a ‘defined period of time’ or ‘defined task’. The former contract has an unambiguous start and end date, whereas the latter is determined by a particular job or project, and once ceased, the employment arrangement expires. Such relationships can be appealing in project management industries or positions with fixed government funding.
Given the express termination date, fixed term contracts are excluded from the unfair dismissal provisions of the Fair Work Act 2009 (Cth) provided they are correctly drafted and implemented.
If, as an employer, you need to terminate a fixed term contract early, ensure you have a lawful basis to do so such as for poor performance or misconduct. Where termination is exercised without cause, the employee may be entitled to any applicable notice of termination.
Otherwise, if the role becomes redundant, an employer remains entitled to terminate the contract provided it meets the requirements of a genuine redundancy. Redundant employees are entitled to the applicable notice of termination and redundancy pay, unless the employer is a small business.
Drafting and termination risks
Incorrectly structuring fixed term employment arrangements can expose employers to significant costs. Some of our tips to remember when managing fixed term employees in the COVID-19 environment include:
- Correctly identify whether the contract is for a defined period of time (i.e. filling a temporary vacancy or for seasonal needs) or for a defined task (i.e. employment ends once work is completed).
- When drafting the fixed term contract of employment:
- If the contract is for a defined period of time, restrict the time of the contract to the shortest period manageable.
- If the contract is for a defined task, structure the task or project to ensure the end of the contract is clear.
- Ensure the contract allows you the right to terminate during the term of the contract for misconduct or poor performance. If the contract refers to a broad and unconditional right to terminate during a fixed term, the contract will not be one that has defined its start and end dates.
- Bring the employment relationship to a conclusion by conduct and in writing:
- If the employee continues working past the end date, they are deemed to be working on same terms as the previous contract, without a fixed term.
- To re-engage the same employee, create a fresh employment contract immediately following the termination of the first contract.
- Avoid contracts becoming “back-to-back” or rolling contracts by updating the contract terms to reflect the new position or task. This process of reviewing and updating the contract will enhance legitimacy of the successive contract.
If you have any questions or queries in relation to the fixed term contracts and the possible legal and financial consequences thereof, please make sure you contact our workplace relations lawyers to enable you to mitigate against such risks.