Employment Law

Breaking fixed term agreements early

It seems like an answer to a question no one has asked because when employers enter into a fixed term agreement, they do that for a reason, for instance to cover for another employee who is sick or to get additional support for a project because someone is on maternity leave. Aside from the obvious, such as serious misconduct and performance issues, the issue of breaking a fixed term early should usually not arise. And that is true, at least if one is to believe the current case law, because there is none. Except for a decision by the Privy Council from 2002, the question how and under which circumstances an employer can terminate a fixed term agreement early, seems to have not been decided at any court or authority level.

But one can easily imagine scenarios where situations change and the premise for a fixed term all of a sudden goes out of the window – the main sponsor of a project pulls out, the bank withdraws finance, the sick employee recovers more quickly than anticipated etc.  Under such circumstances, can the employer then terminate the agreement? In a way, its a situation similar to that of a frustrated contract. The basis for the initial agreement has disappeared for reasons outside the control of both parties (arguably). If the events would have been foreseeable, neither party would have entered into the contract, or at least under different terms. That should allow the employer to terminate the agreement. If there is contributory negligence, the employee would be entitled to damages, up to the remaining salary under the initial term.

At the end of the day, its a balancing exercise of what cost more – keeping the fixed term employee on the payroll without any benefit for the employer, or terminating early and risking a PG which might cost as much as having the contract run its course.

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