In recent years, Malta, like many other countries, has witnessed a significant shift in employment contract preferences, moving from fixed-term to indefinite contracts. This change reflects a broader trend in the labour market and raises important questions about the optimal use of different types of employment contracts.

When Fixed-Term Contracts Make Sense

Fixed-term contracts are particularly useful in certain scenarios. For instance, they are ideal for addressing temporary workload increases due to seasonal demands, project-based work, or maternity cover. These contracts provide the necessary workforce flexibility for businesses to manage varying demands without committing to long-term employment costs.

The Downside of Fixed-Term Contracts for Retention

However, the strategic use of fixed-term contracts for employee retention and salary control can be problematic. In Malta, employees who leave before their contract expires may face significant financial penalties. The law stipulates that a team member who leaves before contract expiry has to pay the organisation employed with half of the remuneration due till contract expiry. This approach, while legally permissible, can have unintended consequences for organisations.

Impacts on Morale and Productivity

The use of fixed-term contracts for retention purposes can lead to decreased morale especially for those who would like to leave the organisation they are employed with. Employees who feel compelled to stay due to contractual obligations may harbour resentment, which can not only reduce their productivity but also potentially spread negativity among their peers.

Salary Cap Resentment

Another critical issue arises when fixed-term contracts are used to cap salary increases. If the market-driven salary increases outpace the increments stipulated in the contract, employees may feel undervalued and discontented. Such a strategy can exacerbate the feeling of being trapped in an unfavourable financial situation, further fueling resentment.

A Focus on Well-Being and Alternative Retention Tools

Progressive organisations, particularly those focused on employee well-being, tend to avoid using fixed-term contracts as a retention tool. Instead, they leverage alternative strategies such as offering learning and development opportunities, remote working options, flexible hours, and promotion prospects. These approaches not only foster a positive work environment but also contribute to higher employee satisfaction and loyalty.


As the labour market evolves, it's crucial for employers to adapt their strategies to align with both best practice and employee expectations. While fixed-term contracts have their place, their use as a retention tool is fraught with challenges. Organisations must carefully consider the implications of their contract policies on employee well-being and overall business health.

For a thought leadership article about employee retention strategies follow this link.