Q. Our company has an employee who is employed on an 18 month contract which is due to finish at the end of the year however it appears the work related to the contract will be completed 3 months ahead of schedule. The terms of the employee’s employment contract specifies that the contract is for a period of 18 months.  Our understanding is that redundancy pay does not apply to an employee who is employed on a contract of a specified period of time. As his employment is finishing before the period of time specified in the contract, is the employee entitled to redundancy pay?  

A. The employee would be entitled to redundancy pay under the National Employment Standards (NES) if the position becomes redundant prior to the end of the period of time specified in the contract of employment, and the contract includes an early termination clause and provided the employee has completed at least 12 months’ continuous service with the employer and the employer employs 15 employees or more. While the Fair Work Act (ss.121 & 123) provides that the scale of redundancy pay under the National Employment Standards does not apply to an employee’s termination of employment if the employee is employed for a specified task, or a specified period of time, or a specified season, the termination must take place at the completion of the specified task, time or season.  

This means redundancy pay would not be payable if the contract finished at the completion of the contracted period of time (in this case at the completion of 18 months).   

Redundancy would also not be payable if the fixed term contract had no early termination clause as this would require the employer to pay out the full term of the contract. 

Under the scale of redundancy pay, an employee who has completed more than one year but less than two years’ continuous service is entitled to 4 weeks’ redundancy pay at the employee’s base rate of pay.   

What is a contract of a specified period of time?  

A contract of a specified period of time would be one where the time of commencement and the time of completion are unambiguously identified by a term of the contract, either by the contract stating definite dates, or by stating the dates or criteria by which one or other end of the period of time is fixed, and by stating the duration of the contract of employment. It is the common law position that a contract that ends with the effluxion of time does not terminate at the initiative of the employer.  

 

Unfair dismissal  

It should also be noted that an employee employed under a contract for a specified period of time, whose employment is terminated other than at the expiration of that contract, may make an application under the unfair dismissal provisions of the Fair Work Act, provided the employee has served the relevant minimum period of employment.  

  

Bottom line  

Redundancy pay is not payable when an employee completes a specified term or specified contract and the employment ends at that time, or when the employer pays out the full term of the contract upon an early termination. However where a fixed term contract includes an early termination clause an employee terminated at any other time during the course of the contract and given notice of termination in accordance with that early termination clause would be entitled to redundancy pay under the NES provided the employer employs 15 employees or more and the employee has completed at least 12 months’ continuous service with the employer. Note that some modern awards and enterprise agreements would also require small employers to pay redundancy in that situation.