The Difference Between Fixed-Term And Indefinite Employment Contracts

Introduction to fixed-term and indefinite contracts

There are two main types of employment contracts: fixed term and indefinite. These terms refer to the length of time that the contract is in effect, and they each have their own set of characteristics and considerations. In this article, we'll take a closer look at fixed-term and indefinite contracts, including their definitions, advantages, and disadvantages.

Fixed-term employment contracts

A fixed-term employment contract is a type of employment contract that lasts for a predetermined amount of time. Think of these like a professional sports contract – 7 years at X dollars per year. These contracts have a specific start and end date, and they cannot be terminated before the end of the term unless there is a fundamental breach of contract. In the employment world, fixed-term contracts are often used for temporary or project-based work, or a lot of the time, a parental leave, where the employer needs someone to fill a specific role for a specific period.

Advantages of fixed-term contracts:

Fixed-term employment contracts provide a clear end date, which can be helpful for both the employer and the employee (both parties may prefer the certainty of a specific end date). And they may be easier to negotiate since the duration of the contract is clearly known. And they may offer more stability and security than indefinite contracts, as the employee knows exactly how long they will be working for the company and the employer can budget for the future more clearly. Plus, some employees in todays job market frankly like to only work somewhere for a year or so before traveling or taking time off to chill out, and they might feel better committing to only a year or so.

Disadvantages of fixed-term contracts:

If the employer wants to terminate the employee, they may have to pay the balance of the fixed-term contract.  This is a big risk. If an employer terminates someone with two years left on their contract, or even ten years, they could owe them all that pay for no work in return. Also, from an employee's prospective, these kinds of contract also may be seen as less desirable by some job seekers, as they do not offer the same level of long-term stability.

Indefinite employment contracts

An indefinite employment contract, also known as an open-ended or permanent contract, is a type of employment contract that has no predetermined end date. These contracts continue until they are terminated by either the employer or the employee. Indefinite contracts are typical, and make up the vast majority of employment relationships. 

Advantages of indefinite contracts:

Indefinite term employment contracts can be terminated at any time by the employer, helping the employer avoid keeping on a poorly performing employee.  And they may be seen as more desirable by job seekers, as they offer long-term stability.

Disadvantages of indefinite contracts:

Indefinite contracts may offer less stability for the employer over the long run, as they may have to provide significant pay in lieu of notice if they want to terminate someone after a long time.  Moreover, they may not be suitable for temporary or project-based work.

In conclusion, fixed-term and indefinite contracts are both types of employment contracts, with indefinite contracts being more common. Fixed-term contracts are great for projects, but not so great for regular work due to the risk of high costs for early termination. Most traditional employers hiring regular employees should primarily consider an indefinite-term employment contract. 

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