There’s a common perception that fixed term employment contracts mean no unfair dismissal claims.  At the start of 2017, we warned of the dangers of these contracts.  To recap, a true fixed term contract is for a specified time.  If the employer terminates before the fixed term ends, it generally has to pay out the balance of the fixed term (and may be subject to unfair dismissal and redundancy claims).

This problem is normally addressed by including an early termination provision.  However, this is not a complete solution as employees can bring an unfair dismissal claim if their employment is ended before the fixed or “outer limit” term finishes.  At least employers have been able to let these “outer limit” contracts run their course and not renew the contract, without fear of an unfair dismissal claim.  Well, not any more!  A Fair Work Commission Full Bench held recently that:

  1. an “outer limit” contract (as opposed to a true fixed term contract) is not exempt from the unfair dismissal laws even if it runs its full course; and
  2. it is necessary to look at the circumstances in which the employment ended to see if the employment relationship ended at the employer’s initiative.

In the Full Bench case (Khayam v Navitas English Pty Ltd), Mr Khayam had been employed on a series of time limited contracts for 11 years and his last contract was not renewed because of performance concerns.  There was no exemption according to the Full Bench and Mr Khayam could pursue his unfair dismissal claim.  This means that, for the present:

  1. fixed term contracts should only be used where there is a specific time or task based job to be done, preferably on a “one off” basis;
  2. fixed term contracts shouldn’t contain an early termination provision (and therefore should only be for a short time period);
  3. performance issues can’t be avoided;
  4. more than ever, it’s important to terminate employment within the first 6 or 12 months (depending on the size of the employer) if the employer has concerns about an employee;
  5. fixed term and “outer limit” contracts are no longer an easy way of avoiding unfair dismissal laws.