Perth Businesses - The Dilemma of Recruiting Fixed Term Employees
February 23, 2016 | By Christine Howitz, Vitil
With the recruitment of the permanent labour market in Western Australia changing and employers being less inclined to add additional labour costs to their business, Perth's HR recruitment services professionals, Vitil Human Resources are seeing a spike in client requests when recruiting employees on fixed term contracts.
A recent decision of the Fair Work Commission highlights the risks in misusing fixed-term employment contracts.
A misconception Vitil HR sees among some businesses is they view an employee recruited on a fixed-term job contract of employment as a 'casual'. This is not the case. A fixed term contract employee is considered as being equivalent to a full time permanent employee when it comes to job entitlements e.g. a fixed-term job contract employee would be entitled to a public holiday prescribed which fall on a day the employee normally works, the same as a permanent employee.
Where a fixed-term contract employee completes 12 months' continuous service with the employer, the employee would be entitled to four weeks' annual leave, pro rata.
Major Benefits Of A Fixed Term Contract
The major benefits of a fixed-term employment contract are that the employer can conclude the employment relationship on the expiry date without having to give a reason for termination (such as misconduct or poor performance). The decision can simply be made to not renew the term of the contract. This can be very useful when dealing with senior employees or short term specialists.
Most employment agreements are 'ongoing' jobs in nature, in that there is a commencement date and the termination date is unknown at the beginning of the employment relationship.
Generally, the longer the period of a fixed-term employment contract then more the likelihood that the employee is entitled to an increasing number of employment conditions, particularly if the period of the fixed-term is one of twelve months or more.
Many businesses at times during recruitment, offer their employees 'fixed term' agreements that operate for a fixed period of time (i.e 12 months). When using such agreements, there are some important issues that employers should take into consideration in their recruitment policy and process.
Termination And Unfair Dismissal
Where an employee has their services recruited for a 'specified period of time,' and the employment is terminated at the end of that period, then the employee will not be entitled to make an application for unfair dismissal. However, if a fixed term agreement is terminated prior to its expiration date (for any reason other than for misconduct), then two issues arise:
- Is the employer obligated to 'pay out' the employee until the expiration date?
- Can the employee make an application for unfair dismissal?
Firstly, the employer should always ensure that the fixed term agreement contains clear words that allow the Perth employer to prematurely terminate the agreement for any reason. This will ensure that the employer's obligation to pay the employee remuneration ends at the termination date (other than notice of termination and leave entitlements).
Secondly, an employee cannot make an application for unfair dismissal unless he or she has completed the statutory qualifying period, which is as follows:
- less than 15 employees – the qualifying period is 12 months; or
- 15 or more employees – the qualifying period is 6 months.
For example, if a Perth business employs 20 employees and has entered into a fixed term agreement for a period of 12 months, and after 9 months the employer prematurely terminates the agreement for poor performance, then the employee may be able to make an application for unfair dismissal because they have served their 6 month qualifying period. In this scenario, the maximum compensation available to the employee would be three (3) months' wages.
If the same Perth business prematurely terminates the agreement for genuine redundancy reasons (i.e the position is no longer required), then unfair dismissal remedies will generally be unavailable to the employee.
Creation Of A New Agreement
At the conclusion of the fixed term, if an employee continues to work for the employer without a formal extension of the fixed term, even by one day, then the law will treat such as the creation of a new ongoing employment agreement that has the same terms as the previous agreement, without the fixed term.
Where a fixed-term arrangement is appropriate, employers should consider:
- limiting the fixed term of the arrangement policy where possible;
- ensuring that appropriate safeguards are included in the formal contract that allow the employer to dismiss the employee for misconduct or poor performance in breach of the contract; and
- immediately concluding the employment relationship at the end of the fixed term unless a written agreement has been made to renew the employment.
Given this, employers should always do one of three things when a fixed term employee is nearing the end of their contract period:
- Notify the employee that upon the expiration of the fixed term, their services will no longer be required and the employment will come to an end; or
- Notify the employee that the employer wishes to extend to the fixed term agreement for a further period; or
- Enter into a new 'on going' employment agreement with the employee.
At Vitil Human Resource Consulting Services, we are a boutique HR consulting services and recruitment specialist in Perth, Western Australia. We partner with many SMEs to develop their strategic human resource plans and implementation schedules. Vitil Outsourced HR Services offers flexible, reliable and affordable outsourced human resource support and recruitment services , to help you and your human resources recruit responsibility and engage their teams.