Hiring on a maximum term can be a smart way to cover a project, replace someone on parental leave, or manage headcount while your business grows.
Done well, it gives you flexibility and sets expectations about timing. Done poorly, it can create confusion with fixed term rules, unfair dismissal risk, or issues at renewal time.
In this guide, we’ll step through what maximum term contracts are in Australia, how they differ from fixed term arrangements, where the new fixed term limits may still bite, the key risks to manage, and how to draft and use maximum term contracts with confidence.
What Is A Maximum Term Contract?
A maximum term contract is an employment agreement that sets an “outer” end date (for example, 12 months), but it also allows either party to end the employment earlier by giving notice (or by paying in lieu of notice, if the contract permits).
That ability to end early on notice is the hallmark of maximum term. It gives you flexibility while signalling how long you expect the role or project to run.
By contrast, a genuine fixed term contract typically ends only on the end date, with no option for either party to terminate earlier (other than for serious misconduct or another narrow, expressly agreed trigger).
Maximum Term Vs Fixed Term: Why The Difference Matters
The distinction matters because different rules can apply under the Fair Work Act 2009 (Cth), modern awards and case law. At a high level:
- Early termination: Maximum term contracts can be ended on notice before the end date. Fixed term contracts generally cannot be ended early (apart from serious misconduct or a very limited trigger).
- Unfair dismissal exposure: If you end a maximum term early, that is typically a termination at the employer’s initiative. Usual unfair dismissal rules may apply (subject to eligibility thresholds). When a genuine fixed term ends by effluxion of time, it usually isn’t a dismissal for unfair dismissal purposes.
- Payment on exit: If you end a maximum term early, you must provide the correct notice or payment in lieu of notice and follow a fair process.
- New fixed term limits: From December 2023, the Secure Jobs, Better Pay reforms limit the use of certain fixed term contracts. Whether those limits apply depends on the actual wording and effect of your contract (more on this below).
In practice, employers use maximum term contracts to manage uncertainty (for example, funding-related roles, pilots or defined projects) while preserving normal employment rights during the term.
Do The New Fixed Term Limits Apply To Maximum Term Contracts?
The December 2023 reforms introduced caps on the length and renewals of certain fixed term contracts, with a list of exemptions (e.g. temporary backfill, specified training arrangements). These provisions focus on contracts that end only at a specific time and cannot be terminated early by either party in any usual sense.
Many genuine maximum term contracts - where either party can end employment on notice during the term - will typically sit outside those statutory limits. However, this is an area where careful drafting and actual practice matter. There are scenarios where the fixed term rules may still be engaged, including:
- Termination rights that aren’t real in practice: If the “on notice” right is so restricted that the contract is, in substance, not terminable early (or can’t practically be exercised), the arrangement may be treated as fixed rather than maximum term.
- Renewal patterns: Back-to-back terms, automatic rollovers, or a pattern suggesting ongoing employment can attract scrutiny under the reforms even if each individual agreement is labelled maximum term.
- Inconsistent drafting: Mixing fixed term and maximum term concepts (for example, stating employment “will end on X date” but burying a limited termination right elsewhere) increases the risk the contract is characterised as fixed term.
The takeaway: maximum term arrangements can be a compliant and flexible option, but they are not a “free pass.” Ensure the termination-on-notice mechanism is clear and workable, and avoid renewal conduct that undermines the “maximum” nature of the term. If you’re unsure how your document will be interpreted, it’s sensible to have an employment lawyer review the wording in light of the new rules.
Key Legal Risks To Manage With Maximum Term Contracts
1) Ending Early And Unfair Dismissal Exposure
Because maximum term contracts can be ended on notice, bringing one to an end early is typically a termination at the employer’s initiative. If the employee meets the jurisdictional thresholds (e.g. minimum employment period, earnings cap, and coverage by an award or enterprise agreement), they may be eligible to file an unfair dismissal claim.
Minimise risk by ensuring you have a valid reason (capacity, conduct or operational requirements), follow a procedurally fair process, and provide the correct notice or pay in lieu. Where appropriate, you can also include garden leave provisions so you can stand the employee down from active duties during notice and protect your business. Our overview of garden leave explains how this works in practice.
2) Letting The Contract Expire At The End Date
When a maximum term reaches its stated end date and you choose not to renew, the employment usually ends by agreement rather than through a dismissal. That said, facts matter.
If there’s a pattern of automatic renewals, promises of ongoing employment, or conduct that creates a reasonable expectation of continuity, the situation can change. Keep your communications clear and avoid language that guarantees renewal unless you truly intend to make a new offer.
3) Redundancy And Notice Questions
If a maximum term simply expires on the end date, redundancy pay will often not be payable because the role ends due to the agreed term expiring, not because the position is no longer required. However, if you terminate early for operational reasons, normal redundancy considerations may apply (subject to small business exemptions and redeployment obligations).
Notice is still required for early termination unless serious misconduct applies. Make sure your contract’s notice clauses align with the National Employment Standards (NES) and any applicable award or enterprise agreement.
4) Awards, Enterprise Agreements And Minimum Entitlements
Maximum term employees are still employees. Modern awards or enterprise agreements can apply during the term, and you must comply with minimum wages, hours, allowances, overtime, and consultation obligations.
If you pay an annualised salary that is intended to absorb award entitlements, ensure your set-off clauses are drafted carefully and reconcile against hours actually worked. If you are unsure about coverage, consider getting help on modern awards before you make an offer.
5) General Protections And Discrimination
General protections laws apply regardless of contract type. Ending early or choosing not to renew must never be for a prohibited reason (for example, a workplace right, industrial activity, or protected attribute). Keep decision-making objective, documented and grounded in lawful business reasons.
How To Draft A Strong Maximum Term Contract
Clear, practical drafting upfront reduces misunderstandings later. Build the following into your template.
Core Term Structure And Notice
- Start and end dates: State the commencement date and the outer end date, and make it explicit that either party may end employment before the end date by giving the specified notice.
- Notice periods: Ensure your notice periods align with NES minimums and any award or enterprise agreement. Include the option to pay in lieu and, if appropriate, to place the employee on garden leave during notice.
Role, Flexibility And Pay
- Primary duties and location: Describe the role, reporting line and location. Include reasonable flexibility around duties and location (within award limits).
- Remuneration structure: If you’re relying on set-off to cover penalties or loadings, include a robust set-off mechanism and a process to reconcile against actual hours.
Protecting The Business
- Confidentiality and IP: Include tailored confidentiality and intellectual property clauses so anything created during employment belongs to the business.
- Restraints: Add reasonable post-employment restraints to protect clients, staff and confidential information (commensurate with the seniority of the role and local law).
- Policies: Reference your workplace policies and clarify whether they are contractual or non-contractual.
If you’re refreshing your suite, align your maximum term template with your ongoing and part-time Employment Contract so everything is consistent for managers and HR.
Managing Renewals, Extensions And End-Of-Term
Decide Early And Communicate Clearly
Set reminders well before the end date to decide whether you will renew, offer a permanent role, or let the contract end. Early planning reduces rushed decisions and mixed messages.
Use Fresh Documentation For Renewals
If you renew, issue a new contract or a short-form renewal letter that sets a new maximum term and confirms the extension is a new period on its own terms. Avoid informal rollover.
When Not Renewing, Close Out Properly
If you don’t intend to renew, confirm in writing that employment will end on the stated end date and process final pay, leave accruals and any other entitlements correctly. Where there’s a risk of dispute or you agree to end early by consent, a tailored Employee Separation Agreement can help resolve issues cleanly.
Converting To Ongoing Employment
If the role becomes permanent, issue a new ongoing contract rather than trying to “convert” the maximum term document. This avoids ambiguity, lets you reset probation where appropriate, and ensures terms are up to date. For changes of this kind, follow a fair process and document them clearly - our guidance on changing employment contracts outlines the key steps.
Process And Compliance Tips For Employers
- Use the right template: Keep distinct templates for maximum term, fixed term and ongoing roles. Small wording differences can have big legal effects.
- Check coverage before offering: Confirm NES and modern award requirements, and factor them into pay and rostering. If needed, get advice on award coverage before issuing an offer.
- Avoid automatic rollovers: Each new period should be a deliberate, documented decision with updated dates and terms.
- Record your reasons: Keep notes of the lawful business reasons for early termination or non-renewal. Good contemporaneous records help if a claim is lodged.
- Follow a fair process: If ending early, invite a response, consider issues raised, provide correct notice or pay in lieu, and apply any probation settings consistently with your probation termination process.
- Exit hygiene: Retrieve property, revoke system access, remind the employee of confidentiality and restraints, and consider garden leave if appropriate to protect clients and data.
Frequently Asked Questions
Can I Use A Maximum Term For An Ongoing Role “Just In Case”?
You can, but use judgment. Back-to-back maximum term arrangements for a genuinely ongoing role can cause employee relations issues and may attract scrutiny if they appear to sidestep job security measures. If you need flexibility, a well-drafted ongoing contract (with clear performance and role flexibility terms) may be a better long-term fit.
Do I Need To Give Notice If I Let The Contract Expire?
Generally, no - if you simply allow the contract to end on the stated end date. If you choose to end it early, you must give the required notice or pay in lieu and follow a fair process.
Can Maximum Term Employees Bring Unfair Dismissal Claims?
Yes, if you end employment early and they meet the eligibility criteria. If the contract reaches the end date and is not renewed, that usually won’t be a dismissal for unfair dismissal purposes - but the factual context matters (for example, repeated renewals or promises of continuation).
Should I Include Pay In Lieu And Garden Leave Options?
Yes. Clauses allowing pay in lieu and garden leave make exits smoother and help protect your business while work is wound down. Include practical mechanics for calculating in-lieu amounts and for placing the employee on garden leave, and ensure they sit alongside a compliant notice regime.
What If I Want To End Early During Probation?
Maximum term contracts can include probation just like ongoing contracts. If you end employment during probation, still follow a fair, proportionate process and make sure your documentation aligns with your probation termination settings.
Key Takeaways
- A maximum term contract sets an outer end date but can be ended earlier on notice - this flexibility is what distinguishes it from a genuine fixed term arrangement.
- The December 2023 fixed term limits focus on contracts that end only at a specific time; many maximum term contracts fall outside those rules, but poor drafting or renewal patterns can still bring risk under the reforms.
- Ending early can trigger unfair dismissal exposure, so have a valid reason, follow a fair process and provide the correct notice or pay in lieu.
- Awards and the NES still apply to maximum term employees - ensure your pay structure and any set-off clauses are compliant, and check modern awards coverage before hiring.
- Draft clearly: strong termination-on-notice wording, role and remuneration clarity, confidentiality/IP protections, optional garden leave and sensible restraint clauses will reduce disputes.
- Manage renewals deliberately with fresh documentation, avoid automatic rollovers, and use appropriate documents (such as an Employee Separation Agreement) to close out employment cleanly where needed.
- If you’re refreshing contracts, keep your maximum term template aligned with your ongoing and part-time Employment Contract so your HR processes are consistent.
If you’d like a consultation on drafting or reviewing 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.
