Many businesses in the building, civil and mining and professional services industries in particular, underestimate the benefit of a well-constructed employment contract. This is especially the case when businesses engage workers for a project, specific period or high season.
Fixed term contracts
An employment contract that states a fixed period of engagement for an employee is useful for the following reasons:
- An employee can be engaged as permanent without the employer undertaking to provide work past the contract termination date. Engaging permanent staff will increase workforce stability and ensure that notice is provided if the employee wishes to resign or alternatively provide greater certainty that the employee will fulfil the full term of the engagement. Permanent rates of pay may also be less onerous than casual rates.
- An employee on a fixed term contract is not entitled to redundancy pay when they are terminated at the end of the contract term, as they have no genuine expectation of ongoing work.
- An employee on a fixed term contract does not have access to unfair dismissal when they are terminated at the end of the contract term as they are not considered as being dismissed on the employer’s initiative.
- An employee on a fixed term contract does not need to be provided a specific notice period when they are terminated at the end of the contract term as the contract effectively ceases. That said, good business practice would be to ensure employees are aware of their contract terminating to provide them with the opportunity to secure alternative work.
Confirm the fixed term
A few things to consider when engaging staff on fixed term contracts are to be very clear in the wording of the contract, always to include a termination date and do not allow employment to continue past the termination date without active written communication.
The wording in the contract would be something to the effect of: You are being employed for a fixed term of X months/years. Your employment commences on xx/xx/xx and terminates on xx/xx/xx.
Termination clause in fixed term contracts
It may also be important to include a satisfactory termination clause that provides the ability for either party to terminate the engagement, with relevant notice. This may be particularly important for employers in cases of redundancy (where the project is no longer required to be performed) or on performance grounds (where the employee is not meeting expectations). You want to avoid situations where a Court upholds the full period of a fixed term contract where an employee is no longer wanted.
Extend fixed term
If you wish to continue to engage the employee past the termination date, then you need to provide the employee with a new offer of employment. Should the employment simply continue past the termination date without a new contract being offered, the contracts fixed term clause may not be seen as applicable, and the employee would gain the entitlements of a permanent non-fixed term employee.
Fixed term contracts can be reviewed or provided as part of EI’s compliance audit as a feature of our subscription plans. Alternatively, you may wish to seek specific legal advice on any existing contractual obligations in this area.