If you wish to maintain some flexibility in an employment relationship, as a business owner, you may choose to engage staff under an employment contract with an identified end date, rather than on a permanent, ongoing basis. Your intention being, at the end of the contract, the employment relationship ends. The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (the Act) recently introduced reforms affecting fixed or maximum term contracts. This begs the questions, are there any circumstances in which an employee can make an unfair dismissal claim at the end of the contracted period?
What are Fixed and Maximum Term Contracts?
A fixed term contact will identify the start and end date of the employment contract. There are no provisions that allow termination before the end date by either party. In contrast, although a maximum term contract will identify an end date, it can be terminated (subject to any notice provisions) prior to that date by either party.
With some exceptions, the Act sets a time limit on employment relationships with an agreed end date. Employers are restricted from using contracts in circumstances where:
- The contract’s term exceeds 2 years;
- The contract contains renewal provisions allowing the overall term to exceed 2 years; or
- There are consecutive contracts for the employee to perform the same or substantially similar work.
There are some exceptions, including for example, if:
- The employee earns over the high-income threshold (as at 1 July 2024, $175,000);
- The role requires specialised skills to complete specific tasks;
- A Modern Award allows it;
- The employee works in a governance role; and
- The employee is engaged to undertake work during a temporary absence of another employee.
Unfair Dismissal Claims
Fixed-term employees have the same entitlements as a permanent full-time or part-time employee. This means that during the term in which they are an employee under their fixed-term contract, they have the same rights as permanent employees to make an unfair dismissal application if they are unfairly dismissed within the meaning of the Fair Work Act 2009 (Cth). However, it is generally held by the Courts that an employee cannot make an unfair dismissal claim at the expiry of the fixed-term contract because the employment relationship has finished, and the employment comes to an end by agreement between the parties. By contrast maximum-term employment contracts allow an employer to terminate a workplace relationship by giving the employee notice in accordance with the provisions in the employment contract.
That said, there are some circumstances in which an employee on a series of fixed or maximum-term contracts may be able to establish that the relationship is a permanent or on-going one, allowing them to bring an unfair dismissal case. Although there may be a good business case as to why an employee is engaged via successive contracts rather than on a permanent and ongoing basis, it is important that such contracts are drafted so the employee has no expectation of further employment at the end of each contract. This may be hard to demonstrate the more times a contract is renewed and upon consideration of the whole employment relationship.1
What should I do to mitigate risk of an unfair dismissal claim against my business?
Minimising the risk of an unfair dismissal claim starts from the moment you first employ someone. Lay good foundations for the relationship, key to which are good job descriptions and properly drafted employment contracts. Consult an employment law expert about issues as they arise, no matter how small, and be prepared to revise policies and procedures.
We recommend our article on this topic: Significantly reduce the risk of unfair dismissal claims by following these 6 rules of effective employee management as well as our top tips for managing fixed term contracts here: Fixed Term Contacts Masterclass.
What to do next
If you are entering contracts with you employees with a fixed end date and you want to know what your rights and responsibilities are, call us on1300 654 590oremail usand speak directly with a lawyer. We will make sure you have the right employment contracts in place to ensure you are not at risk of unfair dismissal claims from employees or weassist you to defend an unfair dismissal claim arising from a fixed term or maximum term contract. Let us help you get on with running your business.
The information contained in this post is current at the date of editing – 1 July 2024.