Fixed term employment contracts can be a great way for businesses to secure talented workers for a finite period of time. But be warned: The simple act of including an end-date in a contract may have unforeseen consequences.
In 2016, a major news station was accused of violating the 13th amendment (which abolished slavery!) with the fixed term contracts offered to its TV personalities. In response, the station contended that fixed term contracts benefit both employee and employer. They provide employees steady income and job security while giving management certainty about its future workforce, which enables better planning, investment, and training.
In the end, the courts ruled in favor of the news network. But to avoid any confusion between your employment contract and indentured servitude, read on to our complete guide to fixed term contracts.
- Fixed term contract Explained
- Fixed term employment: Risks and rewards
- What’s included in a fixed term contract template?
✔️ [Free Template] Employment Contract Template
What is a fixed term contract?
A fixed term contract meaning a short term contract for a specific period of time can be used for temporary or seasonal workers whose skills are not needed year-round. Unless renewed, a fixed term contract will expire by a predetermined end-date.
While other countries may have more restrictions, American labor laws do not limit the duration of a fixed term employment contract or the circumstances under which it can be offered. Though is not regulated, these contracts typically last between one and three years.
What are some positions which require a fixed term contract?
Fixed term employment is ideal for temporary positions such as:
Project work – If a business is in need of a specific skill to complete a project but will no longer require a specialist when the project is complete.
Seasonal work – When a business requires more employees during a high season. This may be around the winter holidays for retail stores or summer holidays for hotels.
Maternity cover – If a permanent employee goes on maternity leave, a business may need a temporary team member to take over her duties.
Are fixed term employment contracts “At-Will” Agreements?
In the US, if there is no written contract or if the term of the contract is not specified, it is considered to be “at-will.” This means that either employee or employer can sever the relationship at any time for any reason so long as it is not discriminatory.
To avoid complications down the line, employees on fixed term contracts should not be considered “at-will” workers. However, employers may include “early termination” clauses in fixed term employment contracts to the same effect. (We’ll get into that a little later.)
How is a fixed term contract different from permanent contract?
Permanent employees are hired to work on an ongoing basis in what is called indefinite term employment. A fixed term employment agreement meanwhile comes with an end date.
Fixed term contract employee benefits may be similar to those of a permanent employee, but a fixed term employee lacks the long term job security.
How is a fixed term contract different from a casual contract?
A casual contract is also a shorter term contract, although casual contracts would be more typical for freelancers and gig workers who may technically be self-employed. Casual contract employees may fill similar positions to full or part time fixed term contract employees, but a casual employee may not be guaranteed a minimum number of hours or ongoing employment.
Fixed term employment: Risks and Rewards
Fixed contracts may allow employers to build a more flexible workforce on a budget, but they also come with serious risks. Left unmitigated, these risks can do a business real harm. Businesses that prepare adequately, however, should have nothing to fear.
Risks
Early termination of fixed term employment
A fixed-term employee dismissed before the expiration of their contract may be entitled to the compensation they would have received if they had worked to the contract’s end date. Employers can avoid this pitfall by including an “early termination clause.” This will provide guidelines for ending the relationship early “without cause” and state clearly the severance amount the employer will pay in lieu of the term’s full salary.
Unfair dismissal fixed term contract
According to employment law fixed term contracts may make employers who violate the terms liable for larger sums than they would be without a contract. However, it’s important to remember the opposite can also be true: a thoughtfully-written contract will protect the employer’s interests as well as their employees.
Implied contracts
As we’ve previously written, employers must be careful that their words match their actions. Implied contracts are those which are not written or verbalized, but which can be extrapolated from the employer’s behavior. For example, if an employee works beyond the end date without having a new contract in place, whether intentionally or inadvertently, the employment relationship may be considered indefinite. Employers may also wish to avoid implementing a series of successive, fixed term contracts for the same reason.
Rewards
If an employer can manage these sticky situations, a fixed-term contract can offer a business many benefits:
- The opportunity to benefit from the knowledge and skills of a specialist for a set time period
- Increased flexibility for both employers and employees
- Effective forecasting of resources and budgets according to workforce requirements
What’s included in a fixed term contract template?
There are many things to keep in mind when creating a fixed term employment contract. Fixed term contract employment rights may vary by state, so it is important that businesses check that their contracts are in compliance with local labor laws.
All employment contracts, regardless of whether they are fixed term, should include the following:
- Job title and description
- Compensation and bonuses
- Benefits, sick leave, and vacation terms
- Any applicable collective bargaining agreements
- Performance review criteria
- Termination benefits and notice periods
In addition to this information, fixed term contracts also should also include:
- When the contract ends. This can be a fixed date, the end of a project, or the end of a season.
- An early termination clause. As we mentioned above, fixed term contract termination clauses will help the employer to avoid paying an employee’s salary for the fixed term even after the employee has been dismissed. An employer should include a fixed term contract notice period as well as the severance pay.
- Language determining whether it is or is not an at-will agreement. In some states, such as California, fixed term contracts cannot be at-will. It is better to write this explicitly to avoid confusion down the road. Other states may allow employers to forge fixed term at-will agreements, in which case this should be specified also.
- Procedure for fixed term employment contract renewal. Employers should include information about if and how the fixed contract can be renewed. Is it automatic? Does it require sign-off from one party or both? This will clarify the employment arrangement and clear the way for future negotiations.
Moving Forward with Fixed Term Contracts
Using fixed term employment contracts may be the best way for your company to keep the budget balanced while getting moving key projects forward. By proceeding with caution, your company can avoid infringing on fixed term employee rights. This means mitigating risks and liability while holding on to all the perks of fixed term contracts.
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Written by Valerie Slaughter
