Ending a fixed-term contract early and employer obligations in Australia

A fixed-term contract looks like a clean exit. You hire someone for six months or a year, the end date arrives, and the employment finishes without the ceremony of a dismissal. But when plans change and you need to bring the contract to an end before that date, the position is different. You are not letting a term run out. You are dismissing an employee, and the same obligations under the Fair Work Act 2009 (Cth) that apply to ending any other employment now apply to you: you need a lawful reason, the right notice or payment in lieu, and the correct final pay, paid on time.

This article sets out what an Australian employer must do when ending a fixed-term contract early. We cover who the obligations apply to, the six duties that follow once you decide to end early, what happens if you get it wrong, and a checklist you can work through before you give the employee the news.

Who the obligations apply to

The obligations in this article apply to every employer of a national system employee engaged under a fixed-term contract, whatever the size of the business. A fixed-term contract is one that ends at the end of an identifiable period, for example a set date, the completion of a task, or the end of a season.

Four features of your situation change exactly what you must do, so it is worth working through them before anything else:

• Genuine expiry versus early termination: If the contract simply runs to its end date, most dismissal obligations do not apply. If you end it early, they do. This is the distinction that drives everything below.
• Small business status: You are a small business employer if you employ fewer than 15 employees, counting regular casuals and associated entities as one group, under s 23 of the Fair Work Act 2009 (Cth). Small business employers benefit from a longer minimum employment period and an exemption from redundancy pay.
• The employee's length of service: An employee must complete a minimum employment period before they can claim unfair dismissal: six months with a non-small business employer, or 12 months with a small business employer, under s 383.
• The high income threshold: From 1 July 2026 the threshold is $190,100 per year, per the Fair Work Ombudsman. Employees earning above it who are not covered by an award or enterprise agreement cannot claim unfair dismissal, and it also operates as an exception to the fixed-term limits discussed below.

Confirm you have a lawful basis to end the contract early

Your written contract is the starting point, and it usually decides whether early termination is even available to you.

Many fixed-term agreements include an early termination clause that lets either party end the contract on notice before the end date. If yours does, follow the notice period and any process it sets out to the letter. Some contracts also allow payment in lieu of notice so the employment can end immediately.

If the contract is silent on early termination, you do not have a general right to end it early just because your business circumstances have changed. In that situation you may only be able to end the employment before the end date for serious misconduct or another fundamental breach, or by genuine mutual agreement with the employee, documented in writing with the final entitlements set out clearly.

Ending early without a contractual right or a lawful reason exposes you to a breach of contract claim. The employee can seek damages for the remuneration they would have earned over the remainder of the term, reduced by any income they earn in mitigation from new employment. For a long fixed term, that exposure can comfortably exceed the cost of doing the process properly.

Treat genuine expiry differently from early termination

This is the duty employers most often get wrong, so it deserves emphasis. Under s 386(2)(a) of the Fair Work Act 2009 (Cth), an employee engaged for a specified period, task or season has not been dismissed if the employment ends at the genuine end of that period, task or season. No dismissal means no unfair dismissal claim, and the same logic runs through the National Employment Standards: under s 123(1)(a), employees engaged for a specified period are not covered by the notice of termination and redundancy pay provisions at all. So at a genuine expiry you generally owe no notice and no redundancy pay.

Two qualifications matter. First, the exceptions carry an anti-avoidance rule: the protection is lost if a substantial purpose of the fixed-term arrangement was to avoid the employer's obligations under the Act. Secondly, and more importantly for this article, none of this applies if you end the employment early. When you terminate before the end date, the employee has been dismissed at your initiative, and the ordinary dismissal protections apply: unfair dismissal (if the employee meets the service and income thresholds) and the general protections against adverse action.

Give the right notice or payment in lieu

If you are ending the employment early, s 117 of the Fair Work Act 2009 (Cth) requires you to give written notice of the termination day, and the period between the notice and the last day must be at least the minimum set out in the Act, unless you pay in lieu. The minimum notice period is based on continuous service, per the Fair Work Ombudsman:

• 1 year or less: 1 week
• More than 1 year, up to 3 years: 2 weeks
• More than 3 years, up to 5 years: 3 weeks
• More than 5 years: 4 weeks

Employees over 45 with at least two years of continuous service get an extra week. Your contract, award or enterprise agreement may require a longer period, and you cannot contract below these minimums.

If you pay in lieu of notice, the payment must equal the full amount the employee would have earned had they worked out the notice period, including loadings, allowances and other separately identifiable amounts. Note that the notice requirement does not apply where the termination is for serious misconduct, but the employee's accrued entitlements, including annual leave, must still be paid.

Pay redundancy pay where the role is genuinely redundant

Where the end date arrives and the employee leaves, redundancy pay is not payable. But if you end the contract early because the role is no longer required, you may have created a redundancy, and the position is different.

A dismissal is a case of genuine redundancy, and therefore not an unfair dismissal, only if the employer no longer requires the job to be done by anyone because of changes in the operational requirements of the enterprise, the employer complied with any consultation obligation in the applicable award or agreement, and it would not have been reasonable to redeploy the employee, under s 389 of the Fair Work Act 2009 (Cth). The Fair Work Ombudsman can decide whether a redundancy is genuine, so the consultation step is not optional.

Where redundancy pay applies, the scale in s 119 runs from four weeks for between one and two years of continuous service, up to 16 weeks for nine to ten years, with the amounts set by the Fair Work Ombudsman. Two exclusions in s 121 are worth checking early: no redundancy pay is owed to an employee with less than 12 months of continuous service, and small business employers are exempt. The 12-month service test also explains why redundancy pay so rarely arises in a genuine fixed-term context, but it does arise, and the exclusion for fixed-term employees in s 123 is directed at the natural expiry of the term, not at a dismissal before it. If you are ending a fixed-term role early because the work has disappeared, work through the genuine redundancy test and the scale before you assume nothing is owed.

Pay accrued entitlements, and deduct only what the law allows

Whenever the employment ends, whether at the end date or early, you must pay all lawful termination entitlements. The non-negotiable ones are:

• Accrued but unused annual leave, which under s 90(2) of the Fair Work Act 2009 (Cth) must be paid out at the amount the employee would have been paid had they taken the leave.
• Notice or payment in lieu where the termination is on notice, as discussed above.
• Any other accrued entitlements, such as time off in lieu or rostered days off under an award or agreement, and long service leave where the relevant state or territory legislation applies.
• Redundancy pay where the dismissal is a genuine redundancy and the employee qualifies.

Pay the final amounts within the time required by the applicable award, agreement or policy, and provide a clear, itemised payslip. If you are tempted to deduct money from final pay, whether for unreturned equipment, overpaid wages or anything else, stop and check s 324. Deductions are permitted only where the employee has authorised the deduction in writing and it is principally for the employee's benefit, or the deduction is authorised by an enterprise agreement, a modern award, a Fair Work Commission order, or a law or court order. A deduction that does not fit one of those categories is unlawful regardless of what the contract says.

Respect the fixed-term limits when you re-engage

If you are ending a fixed-term arrangement because you want a different arrangement, or because the work continues and you are tempted to roll the employee onto another fixed term, the limits that commenced on 6 December 2023 apply, as set out by the Fair Work Ombudsman and in s 333E of the Fair Work Act 2009 (Cth). For contracts entered into on or after that date, you cannot:

• employ someone on a fixed term of more than two years, including any extensions or renewals;
• include more than one option to extend or renew the contract; or
• offer a new fixed-term contract for the same or substantially similar work where there is substantial continuity of employment and the contracts in combination exceed two years, or the previous contract carried a used extension option.

There are exceptions, including contracts for a distinct task requiring specialised skills, formal training arrangements, essential work in a peak demand period, emergency work or temporary replacement of an absent employee, employees whose guaranteed earnings exceed the high income threshold, government-funded roles, governance positions, and roles where the applicable award permits the arrangement.

Two compliance duties sit alongside the limits. First, when you engage a new employee on a fixed term, you must give them the Fixed Term Contract Information Statement before or as soon as practicable after the contract is entered into. Secondly, the consequences of breaching the limits are severe: under s 333G, the term that provides for the contract to end at an identifiable period is taken to have no effect. The employee becomes an ongoing employee, and the notice, redundancy pay and unfair dismissal protections all apply to them. A contract you thought was temporary can become permanent by operation of law, so review your template and your workforce plan before you sign the next fixed term, not after.

Consequences of getting it wrong

The main risks of an early termination handled badly are:

• Unfair dismissal: If the employee has completed the minimum employment period and earns under the high income threshold, they can apply to the Fair Work Commission within 21 days of the dismissal. The Commission can order reinstatement or compensation, capped at six months' pay or half the high income threshold, whichever is less.
• General protections: Under s 340 of the Fair Work Act 2009 (Cth), you must not take adverse action, including dismissal, because the employee has a workplace right or has exercised one, or for a discriminatory reason. These claims are not subject to the minimum employment period, so a fixed-term employee with three weeks of service can bring one.
• Breach of contract: Ending early without a contractual right exposes you to damages for the balance of the term.
• Unlawful deductions: A deduction that falls outside s 324 is a civil remedy contravention and can attract penalties and back-payment orders from the Fair Work Ombudsman.
• A prohibited fixed-term contract: The fixed-term clause is void, the employee is ongoing, and you owe notice, redundancy pay and unfair dismissal protection accordingly.

Compliance checklist for ending a fixed-term contract early

Work through these steps before you notify the employee:

• Read the contract and the award: Confirm whether early termination is permitted, what notice applies, and whether the award or agreement requires consultation.
• Identify the lawful basis: On notice under the contract, serious misconduct, mutual agreement, or genuine redundancy. If it is conduct or performance based, make sure you can demonstrate a fair process and a proportionate outcome.
• Check the thresholds: Service against the six or 12 month minimum employment period, the high income threshold, and small business status all change what you owe.
• Prepare the paperwork: A termination letter setting out the reason where appropriate, the last day of employment, and the final payment breakdown. Keep notes of meetings and copies of all communications.
• Calculate the payments: Notice or payment in lieu, accrued annual leave, any redundancy pay, and any other accrued entitlements, checked against the NES minimums.
• Confirm any deduction is lawful: Written authorisation and principally for the employee's benefit, or one of the other s 324 categories.
• Pay on time with an itemised payslip.
• Before re-engaging: Check the two-year, one-extension and consecutive contract limits, and give the Fixed Term Contract Information Statement with any new fixed-term contract.

When to get legal help

The situations that most often need a lawyer are the ones where the numbers are large or the reason is contested: ending a long fixed term early without a contractual right, dismissing for conduct during a fixed term, or making a fixed-term role redundant where the employee has more than a year of service. A lawyer will review the termination clause and the applicable award, advise on the strength of the lawful basis, check the exposure to damages, unfair dismissal and general protections claims, and draft the termination letter and any mutual termination agreement. Where the fixed-term limits are in play, they can also review your contract template and your re-engagement plan before the next term is signed.

Is it the end of the term or the end of the employment

Almost every dispute about a fixed-term contract turns on one question: is this the end of the term, or the end of the employment? Treat an early termination as if it were an expiry and you skip the notice, the process and the payments you owe. Treat an expiry as if it were a dismissal and you pay twice. Before you act, pull the contract, confirm the end date and the termination clause, and ask that question honestly. If the answer is that you are ending the employment early, the safest first step is a written termination plan that covers the lawful basis, the notice, and the final pay, before you have the conversation.