Fixed-Term vs Maximum-Term Contracts: Australian Employment Guide

If you’re planning to hire staff in Australia, choosing the right employment contract matters for compliance, cost, and team stability. Two options that often get confused are fixed-term and maximum-term contracts.

They sound similar, but they work very differently-especially when it comes to termination rights, unfair dismissal risk, renewal rules and the recent changes to Australian employment laws.

In this guide, we’ll unpack what each contract means, the key legal differences, how the 2023 Fair Work changes affect fixed-term arrangements, and practical tips to choose (and draft) the option that fits your business.

What Is A Fixed-Term Contract?

A fixed-term contract sets a clear end date (or a task-based end point). It generally ends automatically at that time without further notice-unless the contract says otherwise.

Traditionally, fixed-term contracts were attractive when you had a defined need (for example, a six-month project or parental leave cover). However, from 6 December 2023, new rules limit how employers can use fixed-term arrangements in many cases.

Key features

• Has a fixed end date or completion of a specified task.
• Usually ends automatically on that date (no termination needed), unless the contract contains an early termination clause.
• Rolling or back-to-back fixed terms are now restricted in many scenarios.
• You must provide the Fair Work Fixed Term Contract Information Statement to affected employees.

For shorter engagements (such as 12 months), you may still consider this option-but it’s critical to understand the new legal limits on 12-month fixed-term contracts and renewal restrictions.

What Is A Maximum-Term Contract?

A maximum-term contract has an outer end date, but the employment can be terminated earlier on notice (or for another contractual reason). In practice, this gives you a similar “time-limited” arrangement with more flexibility to end the employment lawfully before the end date.

Key features

• Includes an end date but also a valid clause allowing earlier termination on notice.
• Because it can be terminated earlier, it usually attracts “ongoing” employment obligations-such as notice and potential unfair dismissal coverage (once service thresholds are met).
• Not subject to the same “anti-rolling” restrictions that apply to many fixed-term contracts (but you still need to comply with general employment laws).

Many employers prefer maximum-term contracts for project-based roles as they balance a clear end date with day-to-day operational flexibility. You can dive deeper into practical pros and cons in our guide to maximum-term contracts.

Fixed-Term vs Maximum-Term: What’s The Difference In Practice?

The distinction isn’t just technical-there are real-world implications for risk, cost and how you manage exits.

1) Ending the Employment

• Fixed-term: In many cases, the contract ends automatically at the stated date without notice. If you want to end early, you can only do so if there’s a clear contractual right (for example, a clause permitting termination on notice) or if serious misconduct applies. Ending early without a contractual basis can expose you to breach of contract claims.
• Maximum-term: You can terminate earlier on notice (subject to the contract and the National Employment Standards). This gives you more flexibility if circumstances change.

If you are contemplating early termination of a fixed-term arrangement, it’s important to step carefully-see our overview on terminating a fixed-term contract.

2) Notice Periods

In a fixed-term arrangement (without an early termination clause), no notice is needed at the end date. But for maximum-term (and any early termination of fixed-term where permitted), the contract and the National Employment Standards will govern notice.

It’s best practice to align your contract with lawful employment notice periods so your team and managers know what to expect.

3) Unfair Dismissal Risk

• Fixed-term: If the contract ends automatically when the term expires, that end point is generally not a dismissal for unfair dismissal purposes. However, if you terminate early, unfair dismissal rules may apply (subject to jurisdiction and eligibility thresholds).
• Maximum-term: Because it allows early termination, ending it on notice can be a dismissal. Once minimum employment periods and coverage criteria are met, the employee may be able to bring an unfair dismissal claim if the termination is not procedurally fair or for a valid reason.

4) Redundancy

Redundancy entitlements only apply in certain circumstances and depend on the nature of the employment and how it ends. For example, where a fixed term simply expires, a redundancy payment may not be required, but you should confirm your situation (including any award or enterprise agreement). If you are restructuring, seek tailored redundancy advice early to avoid missteps.

5) Renewal and Continuity

• Fixed-term: Rolling fixed terms are now restricted in many cases. Generally you cannot extend beyond two years (including renewals) or beyond one renewal if there is substantial continuity-unless an exception applies.
• Maximum-term: Not directly restricted in the same way. However, regular renewals may create expectations of ongoing employment and increase the practical risk of disputes if a non-renewal isn’t managed well.

What Changed In December 2023 For Fixed-Term Contracts?

The Secure Jobs, Better Pay amendments introduced new limitations for fixed-term contracts from 6 December 2023. In many cases, you can no longer:

• Use fixed-term contracts that run for more than two years (including any extensions), or
• Renew a fixed-term contract more than once, where there is substantial continuity of employment.

There are exceptions-for example, for certain high-income workers, essential time-limited funding arrangements, peak periods, or training/graduate programs. But you must fit squarely within an exception, and be able to evidence it.

You also need to give eligible employees the Fixed Term Contract Information Statement provided by the Fair Work Ombudsman.

These rules do not “ban” fixed-term contracts entirely, but they do curb common practices like rolling fixed terms for long-running roles. If you are unsure whether an exception applies to your planned role, we recommend reviewing your options-including whether a maximum-term arrangement would better manage risk.

How Do I Choose Between Fixed-Term And Maximum-Term?

Start by clarifying why you want a time-limited role. Then check which arrangement is legally permitted and practical for that purpose.

Choose fixed-term if

• You have a genuine, time-bound requirement (e.g. a maternity leave backfill) and the role will end naturally on a set date.
• The role meets the new fixed-term limits or an exception applies, and you will not need to end early.
• You are confident the work will end at the stated date (and you’re comfortable that automatic expiry is the mechanism).

Choose maximum-term if

• You want the clarity of an outer end date but need flexibility to end earlier on notice if business needs change.
• You’re concerned about relying on a fixed-term exception or breaching the “rolling” limitations.
• You want to manage performance or restructure risk with the standard suite of termination options (subject to legal thresholds).

For many businesses, maximum-term contracts are a practical default for project or grant-based roles because they avoid some of the tight restrictions now placed on fixed terms while still signalling a time-limited engagement.

What Should Your Contract Include?

Whichever model you choose, a well-drafted Employment Contract is essential. Clear clauses reduce disputes and help you meet your obligations under the Fair Work Act, the National Employment Standards and any applicable award or enterprise agreement.

Core clauses to get right

• Term and End Date: State whether it’s fixed-term (automatic expiry) or maximum-term (outer end date plus right to terminate on notice earlier). Avoid ambiguous wording.
• Early Termination: If fixed-term, be explicit if early termination is permitted (e.g. for cause, serious misconduct, or on notice). If maximum-term, set clear notice periods aligned with the NES and any award.
• Notice and Payment In Lieu: Set out notice mechanics and confirm if you can make payment in lieu of notice where lawful.
• Duties, Hours and Location: Describe the role, ordinary hours, location/remote expectations and any flexibility provisions. Tie this to award classification where relevant.
• Remuneration and Super: Confirm base pay, allowances and superannuation. Check any award/enterprise agreement obligations including penalty rates and overtime.
• Leave Entitlements: Reference NES entitlements and any additional benefits. If the role is fixed-term, clarify treatment of accrued leave at expiry.
• Performance and Conduct: Outline expectations, policies, and consequences for serious misconduct.
• Confidentiality and IP: Protect business information and ensure intellectual property created in the role is assigned to you.
• Post-Employment Restrictions: Where appropriate, include reasonable restraints. Getting targeted restraint of trade advice helps ensure enforceability.
• Policies: Note any workplace policies and confirm they are not contractual unless you intend them to be.

If you expect to recruit senior staff or those with client access, consider whether you’ll need additional tools such as garden leave for high-risk exits.

Managing Renewal, Expiry And Early Termination

How you close out a fixed-term or maximum-term role can materially affect risk. Build a simple checklist and communicate early with your employee.

If you plan to renew

• Fixed-term: Confirm you still comply with the new fixed-term limits (and any exception). If not, consider converting to ongoing or using a maximum-term arrangement.
• Maximum-term: A new maximum-term contract is often straightforward, but avoid creating unrealistic expectations of perpetual renewal-be transparent about business needs.

If you plan to let it finish

• Fixed-term: If the contract ends automatically, no notice is usually required. Still, give courteous advance communication to support handover and team planning.
• Maximum-term: Diary the contractual and NES notice obligations and issue written notice on time. Your internal process should reflect any award consultation requirements.

If circumstances change suddenly

• Check the early termination clause (if any) and your legal basis (performance, role no longer required, serious misconduct, or business restructure).
• Ensure procedural fairness if you’re ending the role for performance or conduct reasons. Unfair dismissal risk increases in maximum-term roles once the minimum employment period is met.
• Confirm any award or enterprise agreement obligations for consultation and redeployment where redundancy is considered.
• Keep written records of meetings and decisions-clear documentation is invaluable if a dispute arises.

For fixed-term ends, or where a contract allows early termination, it’s also helpful to map the practical steps: settle final pay, process accrued leave, handle property returns, revoke system access and complete a handover plan. If notice is required but you need an immediate exit, consider a compliant payment in lieu of notice.

Compliance Tips And Common Pitfalls

A few planning steps will save you time, cost and stress later.

1) Pick the right model, don’t retrofit

Try not to “make do” with a fixed term if you’re likely to end early or renew repeatedly. A maximum-term arrangement may be the cleaner, lower-risk option in those cases.

2) Align notice, awards and internal processes

Match the contract’s notice clauses with your rosters, payroll cycles and rostering software to avoid accidental breaches. If applicable, confirm any award requirements on consultation, redundancy or classification.

3) Use clear, current templates

Ensure your templates reflect the 2023 fixed-term limitations and the distinction between automatic expiry and termination on notice. If you’re updating your suite, it’s a good time to refresh related documents too-like policies and performance processes-and to lock in consistent notice period wording across your documents.

4) Don’t forget the paperwork

If you use a fixed-term contract, issue the Fixed Term Contract Information Statement to eligible employees. Keep copies of contracts, changes, and communications in one place.

5) Plan exits early

Diary end dates and set reminders. Managers should give early signals about renewal decisions and handovers. Where termination on notice is needed, double-check eligibility criteria before proceeding to reduce unfair dismissal risk.

FAQs: Quick Answers To Common Questions

Can I end a fixed-term contract early?

Only if the contract allows it (for example, a clause permitting termination on notice) or if a legal ground such as serious misconduct applies. Otherwise, ending early may be a breach of contract. If you’re unsure, review the contract and the role’s context against the guidance in terminating a fixed-term contract.

Is a maximum-term contract “safer”?

It’s often more flexible because it permits termination on notice. However, that flexibility also means unfair dismissal rules are more likely to be relevant once eligibility thresholds are met, so you still need robust process and documentation.

Can I roll over fixed-term contracts?

In many cases, not beyond two years total or more than one renewal where there is substantial continuity, unless an exception applies. Consider switching to a maximum-term or ongoing contract if the role is continuing.

Do I need to give notice at the end of a fixed term?

Usually no, if it ends automatically on the expiry date. It’s still courteous and operationally wise to communicate in advance, and some contracts or awards may require practical steps near the end date.

Key Takeaways

• Fixed-term contracts end automatically at a set date; maximum-term contracts include an outer end date but allow earlier termination on notice.
• From December 2023, many fixed-term arrangements are limited to two years (including extensions) or one renewal unless an exception applies, and you must provide the Fixed Term Contract Information Statement.
• Maximum-term contracts are often preferred for time-limited roles where business needs may change, but they require careful process to manage unfair dismissal risk.
• Get the fundamentals right in your Employment Contract: term and end date, notice, early termination, remuneration, leave, confidentiality, IP and any reasonable restraints.
• Plan renewals and exits early, align your notice periods with the NES and awards, and consider tools like garden leave for sensitive departures.
• If you’re restructuring or ending roles mid-term, check redundancy, consultation and payment obligations-targeted redundancy advice can reduce risk.

If you’d like a consultation on choosing, drafting or updating fixed-term or maximum-term contracts for your team, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.