We have a team of senior leaders who are employed on fixed-term contracts. Is there a limit to how often you can extend a contract before, in reality, it becomes a permanent position?
The use of fixed-term contracts might be regulated by an applicable enterprise agreement. Absent that, there is no legal restriction on employing staff on back-to-back fixed-term contracts. The risk is, however, that if you decide not renew a particular contract, the employment relationship might be ongoing despite the cessation of the contract on the agreed end date. If you seek to end the employment relationship on the same date as the contract expires, you will be in effect dismissing the employee, triggering obligations and rights that may attach to this event, e.g. unfair dismissal, redundancy and notice.
This risk is more acute when a fixed-term contract does not reflect a genuine agreement between you and the employee that the employment relationship will not necessarily continue after a specified end date of the contract.
This might be where you:
- don’t have a proper reason to use fixed-term contracts as opposed to an ongoing employment contract;
- use a series of standard-form contracts on each occasion and routinely renew them as an afterthought without any discussion with the employee; and
- represent to the employee that they have ongoing employment subject to conduct and performance, despite the use of fixed-term contracts.