End of contract

Your guide to navigating the end of a contract in your business

First published on Thursday, Jun 04, 2020

Last updated on Tuesday, May 07, 2024

An employment contract is a document that marks a mutual agreement between an employer/business and an employee.

This contract occurs in various ways and can outline each party's obligations to the other. That includes:

  • The names and personal details of both parties (i.e., the employer and the employee)
  • Business policies and procedures
  • Leave entitlements
  • Termination clauses and conditions

In this article, we're going to dive into the complexities of the end-of-contract period. When contractual obligations end because of one party, the other party, or just because the employment contract reaches its termination date.

Let's dive in.

What can lead to a contract termination?

Any employment relationship in Australia should always be governed by some form of mutual agreement. While this can be written or verbal, it's best practice to have these terms laid out in a signed agreement prior to the employment relationship beginning.

It's important to keep in mind that most contracts do more than just outline the responsibilities a person will be required to perform in a role. The acceptance of a contract also means both parties have obligations under the contract, and you will both be responsible for upholding the agreed obligations.

However, events occur that can lead to a party deciding that the contract should be terminated.

For example, you may find yourself terminating a contract in the following circumstances:

  • The end of the original contract period
  • Performance of duties prompting the end of contractual obligations
  • Contract termination due to mutual agreement
  • Reasons beyond your or your employee's control leading to a contract being frustrated
  • Ending the contract by giving notice for convenience at any time (this termination clause is common in government contracts)
  • Contract breaches leading to contract termination

employee holding box of work documents after an end of contract

What is a breach of contract?

One party breaching a vital term in the employment contract can lead to the other party choosing to terminate the contract early.

While breaching a contract can't automatically lead to the end of that contract, when the breach of contract is a serious breach or the breach of an essential term, it may give a party the right to terminate the contract.

Examples of breaching a contract:

  • Having to delay a deadline may be a minor breach of contract that can be rectified by the party responsible for the breach.
  • A major breach or material breach of contract are circumstance such as a failure to pay an employee for work they've done.

When a major breach of contract occurs, it may lead to a court awarding compensation for the party adversely affected by the breach.

The end of contract notice period

One crucial factor to keep in mind when terminating contracts is making sure the other party is given adequate notice of the impending termination. The notice period you are required to provide will depend on the terms of the specific contract you're terminating.

It's important that you adhere to these timelines to stay compliant with the law. Choosing to not fulfil these timelines can constitute an unfair dismissal and lead to legal consequences.

Following the right process when terminating contracts is also important if you wish to have a professional relationship with the other party in the future.

Notice periods are equally important if you are not the terminating party, and your employee has chosen to resign.

Once an employee hands in their notice, you may not be obligated to accept their resignation, but you can't make them continue at your business if they don't wish to do so. If you do accept their resignation, it's best practice to follow up your acceptance with a written document laying out the end date of their contract.

Offering reasonable notice ahead of a contract termination is a valuable step in the process even when no written contract exists.

employee packing up at the end of their contract

Who has the right to terminate a contract?

A contract ends when one of the two or more parties involved chooses to end it through a verbal or written agreement.

The two most common ways that a contract of employment ends are when:

  1. You as the employer choose to dismiss an employee
  2. Your employee resigns

There is also a possibility that both parties simultaneously decide to terminate the contract. This scenario is called a mutual agreement.

Setting contract end dates

A contract can also simply end on the agreed-on termination date.

The date a contract ends isn't necessarily the date that a final outcome is delivered. Some things that may contribute to the end date of a contract are:

  • Business requirements including budgets
  • Market conditions
  • A wider economic circumstance change that affects your business or the work of the contracted employee

Your employment contract may also include extension options for the contract to continue beyond the initial contract end date. However, there have been recent changes to fixed-term contracts and the ability to extend them. These changes may have implications on your ability to extend an employment contract.

business owner dismissing an employee in office

Managing the end of contract period with BrightHR

As a business owner, ensuring that your contract terms are sound and up to date with employment laws is part of your duty.

Issues like unfair contract terms can lead to you as the terminating party landing in legal hot water if a contract breach occurs.

Gain 24/7 employment relations guidance

When it comes to terminating contracts, the risks of getting it wrong can lead to significant consequences for your business.

If the employee being terminated decides they have grounds to claim damages for unfair dismissal you may find yourself or your company in court having to pay a lawyer hefty legal fees.

That’s why not only does BrightHR give you access to an extensive library of HR document templates including contracts. But you also gain access to a team of employment relations experts. These experts are available 24/7 to offer you prompt advice and help you stay compliant with the ever-evolving legislation.

Not a BrightHR customer? Learn more about BrightAdvice and discover how you can get unlimited HR advice and business guidance without legal fees.

Juan Galang

Bright Service Manager Australia New Zealand

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