There are different types of contracts used by employers to engage employees. The type best suited for your situation will depend on your objectives. This article will explore a specific type – maximum term fixed contracts. We will consider what it is and what its benefits are. We will then explore some important considerations for you to be conscious of when making your decision about whether this type is appropriate for you.
Background
Generally, the most common type of contract is an open-ended contract. It doesn’t include a specified finish date. Meaning, you hire an employee for an indefinite amount of time.
There is also a true fixed term contract. It specifies the date upon which the employment will terminate. Both employer and employee agree to this date, and you generally can’t terminate the contract earlier without implications.
A maximum term fixed contract specifies a date upon which the employment will end. By contrast, it allows you to terminate early with notice before this date.
Benefits
The primary benefit of a maximum term fixed contract for employers is flexibility. You are able to terminate employment before the date specified in the contract without having to pay employees for the remainder of period.
This may be beneficial if you’re hiring an employee for specific project or season with a possible early end date. It may also be beneficial if you’re hiring an employee to substitute staff who are unable to work for some time. Otherwise, it may be beneficial if you want the added flexibility to consider the suitability of an employee for a particular role before they officially settle in.
Important considerations
Though flexibility provided by maximum term fixed contracts may be attractive, especially when funds are uncertain, you need to be cautious of the risks involved. Importantly, the nature of this type of contract no longer exempts you from unfair dismissal claims.
The decision of Khayam v Navitas English Pty Ltd (t/as Navitas English) [2017] (Navitas) now means that, sometimes, an employment relationship can enable an employee to bring a claim against you.
For example, you need to be particularly careful of employing employees through a series of maximum term fixed contracts. You may be opening yourself up to a claim if the nature of the relationship indicates an on-going employment relationship. If this is the case, you should obtain advice to review your contracts.
Conclusion
Be cautious in your decision to use maximum term fixed contracts. If you think it is appropriate for your situation, you should always ensure that employees are on the same page in terms of the manner in which the contract is being used and the nature of the employment relationship. You should also consult a company lawyer for assistance.
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