Contract extensions: their advantages and how to do them
Most employment contracts are permanent contracts that have no defined end date and don't operate on a per-project basis. However, many employers like to use shorter contracts such as fixed-term and casual contracts. In fixed-term contracts, an employee works for a specified period or on a project until it's completed. Such employees typically work on either a full-time or part-time basis compared to casual contracts wherein employees work a set number of hours with the possibility of of more. These contracts are generally used by freelancers and independent contractors.
As Legal Zoom explains, employers may want to consider extending these kinds of contracts if they find that more time is needed to complete a given project or they want to continue a productive and harmonious working relationship that is beneficial for both the employer and the employee. Below are some disadvantages of shorter contracts, some advantages of contract extensions and the ways in which employers can extend contracts.
Disadvantages of short contracts
- Qualified candidate shortage: Finding a new employee for a project can be difficult as appropriate job-seekers may not be inclined to take on short contracts.
- Unsuitable employees: Employers may find a few days, weeks or months into the contract that the employee isn't right for the role. It may be difficult to back out of the contract once it's come into effect.
- Legal issues: It's harder to pursue litigation with short contracts if there's a problem with their wording. Also, temporary employees could possibly pursue legal action if they feel they're treated differently than permanent employees.
- Time monitoring difficulties: Short contracts that are based on hours require employers to monitor the employee's time very closely which can be extremely labor-intensive.
Advantages of extending contracts
Upcounsel describes several benefits of contract extensions, including:
- Reduced training periods: Keeping on employees who have already worked for an organization means that the organization can save time and money that would have been spent on new employee onboarding.
- Employee expertise: By extending an employee's contract, employers can enjoy continued productivity because the employee is already familiar with the organization's work and processes.
- Good working relationships: With extended contracts, both the employer and the employee can continue building strong bonds which help improve morale and boost productivity.
Contract extension options
- New contracts: These require writing up an entirely new document when numerous additions or modifications to the current contract need to be made.
- Contract extension agreements: These are a good option when the terms in the current contract can stay the same.
- Limited contract extension agreement: These can be used when only a couple of modifications need to be made to the current contract.
If the contract that is currently in force has an extension provision, that clause needs to be considered to ensure that the extension is legal and fair.