Fixed-term contract: what it is and how to draw it up

Whenever we conclude a contract, it is important to define its term of validity, that is, for how long the contracting parties will be obliged to comply with what was agreed between them. In this sense, the parties may enter into a contract for a fixed or indefinite period.

In this article, we will explore the most relevant aspects of fixed-term contracts and how electronic signatures can be an important ally for their formalization.

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What is a fixed-term contract?

A fixed-term contract is a legal agreement that stipulates a specific period during which the parties involved agree to fulfill their contractual obligations. This type of contract can be used in various situations, such as employment contracts, service agreements, rental contracts, among others. Fixed-term contracts clearly establish the beginning and end of agreed rights and obligations, offering predictability and security for contracting parties.

Drafting a fixed-term contract

The drafting of a fixed-term contract involves particular considerations related to the time limitation of the agreement. Below, we highlight specific aspects to be taken into account during the drafting process.

Definition of the exact deadline

The term of validity of the fixed-term contract must be clearly specified, including the start date and its termination, which is essential for the transparency of the relationship.

Renewal and extension conditions

If there is a possibility of renewing or extending the contract, the detailed conditions and procedures for this must be contractually established, such as deadlines for notifications, performance criteria that must be met to consider the renewal, and the potential duration of an extension.

Early termination

The circumstances and reasons why the contract may be terminated before the expiry of the specified period must be specified, as well as the procedures that must be taken and the penalties that must be applied.

Fulfilment of obligations

The obligations and schedule to be followed (when applicable) during the term of the contract must be detailed in the instrument: milestones, deliverables, deadlines and any clauses related to the quality of the work or the products delivered.

Termination of the contract

If the contract has a specific end date, the inclusion of clauses that address the actions that must be taken at the time of closing the agreement must be considered, that is, provisions for the transfer of responsibilities, closure of accounts, or transition to another service provider.

Legal compliance

The term of validity and any associated clauses must be in accordance with local and international laws and regulations pertaining to the type of contract and the parties involved. As we will see later, there are some types of fixed-term contracts that must follow specific rules.

Contractual Clauses

All provisions described in the previous items, such as term of validity, renewal and extension conditions, and early termination, must be incorporated into the contract in the form of contractual clauses. This is essential to safeguard the parties in any future discussion about the agreed conditions.

Transparent trading

Although this principle is a guideline for all types of contracts, it is important to highlight that the clauses related to the given period must always be negotiated in a transparent manner before signing the contract.

These specific considerations for fixed-term contracts help ensure that the agreement is accurate, fair, and aligned with the needs of the parties involved.

Provisions after the termination of the contract

The clauses present in a fixed-term contract, as a rule, are applicable only during its term of validity. However, there are provisions that may determine obligations that persist even after the expiry of the contractual term, the two main of which are confidentiality and non-competition or It does not compete.

Confidentiality

The confidentiality clause states that both parties agree not to disclose confidential obligations related to the contract, company, clients, or any other strategic information during and after the termination of the contract. The aspects that must be considered for the preparation of this clause are:

• definition of confidential information, ensuring that both parties are aware of what is being protected by the clause;
• confidentiality period, which may last even after the expiry of the contractual term;
• exceptions that allow the disclosure of confidential information, such as by legal requirement;
• penalty for violation of the clause, which may include financial compensation.

Don't compete or don't compete

The non-competition clause or It does not compete prohibits one of the parties from entering into direct competition with the other party, even after the termination of the contract. The important aspects to be considered when drafting this clause are:

• definition of non-competition or It does not compete, and it must be specified which activities or which sectors the parties are prohibited from engaging in or engaging in;
• non-competition period, which may extend even after the expiry of the contractual term;
• penalties for violation of the clause.

These provisions play a fundamental role in protecting business interests and maintaining the integrity of contractual relationships. The inclusion of confidentiality and non-competition clauses in a fixed-term contract increases the guarantee that both parties will continue to comply with those obligations even after the contract expires.

The relevance of electronic signatures in fixed-term contracts

In fixed-term contracts, the choice of electronic signature plays a facilitating role in addressing issues specific to this type of agreement. Let's explore why electronic signatures are particularly valuable in this context.

Agility

Fixed-term contracts often involve short-term projects that require agility in negotiations and in formalizing the agreement. The electronic signature allows parties to complete the signature process remotely, eliminating the need for in-person meetings, sending physical documents, and delays in the process.

Ease of management

By using electronic signatures, companies and professionals can significantly reduce costs and efforts with organizing document printing, sending, archiving, and storing physical copies. This simplifies the management of fixed-term contracts and the result is the saving of financial resources and the optimization of processes.

Tracking and Authenticity

The electronic signature offers a detailed audit trail that records all interactions with the document, ensuring the authenticity and integrity of the contract. This is especially important in fixed-term contracts, where documentation needs to be consulted more frequently for potential revisions and future references.

Easy to share

The electronic signature simplifies the distribution of the contract to the parties involved, regardless of their geographical location. In short-term projects, where agility is essential, this facilitator becomes an attractive asset.

The electronic signature stands out as a valuable tool in fixed-term contracts, providing agility and savings in resources. By adopting this practice, the parties involved can optimize the contract formalization process and focus on the success of the project in question.

Termination of fixed-term contracts

As already mentioned, the termination of fixed-term contracts is an important stage in the life cycle of these agreements, requiring special attention to the particularities involved. Here are the relevant considerations and procedures for terminating this type of contract.

Termination at the end of the deadline

In fixed-term contracts, termination occurs naturally at the end of the agreed period. At that time, the parties must verify that all obligations have been fulfilled and proceed with the conclusion of the contract.

Advance notice

Fixed-term contracts generally do not require prior notice, as their duration is already established. However, it is possible to include a clause stating the need for notification before termination.

Early termination

In exceptional situations, the parties may terminate the contract before the deadline expires. In this case, it is essential to consult the contractual clauses that deal with early termination, such as the deadline for notification and the application of possible penalties.

Legal maximum period

There are cases in which the law determines a maximum term for fixed-term contracts, especially in employment contracts. In those cases, when the contract reaches that maximum term, the termination occurs automatically. It is essential to be aware of the legal limitations for fixed-term contracts and to act in accordance with those restrictions.

Verification of obligations

Before termination, it is important to check the progress of all obligations stipulated in the contract, such as open payments or deliveries that must have been made and take the necessary actions to finalize them at the time of termination.

Adequate communication

Although as a rule there is no need for formal notification to proceed with the contractual termination, it is important that those involved in the fulfillment of contractual obligations, such as employees, customers, suppliers or any other interested party, are notified of the termination of the contract.

Renewal and extension

As already mentioned, renewing or extending fixed-term contracts is a common practice in business settings. However, it is essential to approach these actions taking into account the particularities of this type of contract.

Contractual clarity

The possibility of renewing or extending the contract for a fixed term must be clearly stated in the contractual instrument, so that the parties can prepare for future negotiations on the new conditions that will be agreed.

Renewal conditions

In the event that the renewal of the contract is linked to specific conditions, such as the satisfactory delivery of a project, the need for business continuity, or other considerations, these conditions must be stipulated in the contractual instrument.

Legal Limitations

There are fixed-term contracts that have legal limitations regarding renewal and extension that must be taken into account.

Early notification

Fixed-term contracts may require notice given in advance by one of the parties stating their intention to renew or extend the contract, in order to allow preparation for the continuity of relations.

Renegotiation

The renewal or extension may be an opportunity to renegotiate contractual terms, such as amounts, obligations, schedules, and even establish a specific period different from the previous one.

Transparent communication

The parties involved must be notified of the parties' intention to renew or extend the contract, which is essential for the fulfillment of future obligations to be prepared in advance.

Adequate documentation

The original contract must be updated or a contractual amendment must be signed specifying the new terms, in order to duly record the renewal or extension of the contract for a specified period.

Need assessment

Always before renewing or extending a contract, it is necessary to assess whether this is the most appropriate option for the business needs.

The renewal and extension of fixed-term contracts may be strategic, but they must be conducted with attention to contractual clauses, legal regulations, and the specific needs of the contract in question. These considerations will help ensure that the renewal or extension occurs effectively and in compliance with all parties involved and with applicable laws.

Conclusion

Fixed-term contracts play a fundamental role in a variety of contexts, from the business world to labor relations. This article explored the complexities and nuances of these contracts, highlighting the specificities that must be considered in order for the parties involved to make the most of the benefits and minimize the risks.

In short, fixed-term contracts can be valuable tools to meet the specific needs of the parties involved. However, successful use of these contracts requires careful observation of their particularities and a commitment to legal and contractual compliance.

By taking a thoughtful and proactive approach, the parties involved can maximize the benefits and minimize the risks associated with these agreements, promoting beneficial relationships and positive outcomes.

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