Question: What are the main changes I need to be aware of when using fixed term contracts?
This question was recently answered by our workplace advice line.
Answer: The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) amends the Fair Work Act 2009 (Cth) (FW Act) to limit the use of fixed term contracts for the same role beyond two years or two successive contracts.
Limitations on the use of fixed term contracts
Business can NOT enter a contract with an identifiable period (fixed term contract) – whether or not the contract also includes other termination provisions (max term contract), if:
- They extend for a period of more than two years; or
- The contract provides they may be renewed for a period that exceeds two years; or
- The contract provides an option or right to extend the contract more than once; or
- The contract comes into effect from a previous contract under the following circumstances:
a) The previous contract was a fixed-term contract; and
b) The previous contract was for the employee to perform the same, or substantially similar, work for the employer as the employee is required under the current contract; and
c) There is substantial continuity of the employment relationship between the end of the first contract and the current contract coming into effect; and
d) Any of the following apply:
i. The period of the two contracts together extends for a period of more than two years
ii. The current contract contains a right of renewal or extension
iii. The previous fixed term contract contained an option for an extension that was exercised; or
iv. The employee has previously been engaged under two consecutive fixed-term contracts – even if it does not also exceed two years in duration.
Where a contract that breaches the above provisions is entered into after the commencement date, the term that ends the contract after a certain period would be considered invalid, but the contract would otherwise apply. This means the employee will be considered a permanent employee and entitled to notice, redundancy pay, and protection from unfair dismissal under the FW Act.
EXCEPTIONS
There are some limited exceptions to the above provisions. These include:
- employees engaged to perform only a distinct and identifiable task involving specialist skills
- employees engaged by way of a training arrangement (for example, an apprentice or a trainee)
- employees engaged to undertake essential work during a peak demand period (such as fruit picking or other seasonal work)
- employees engaged to undertake work in emergency circumstances or during a temporary absence of another employee (for example, parental leave, sabbatical, long service leave, or absence relating to workers’ compensation)
- employees who earn more than the high-income threshold for the year that the employee enters the contract
- employees engaged in a governance role that is prescribed a time limit under the governing rules of a corporation or association of persons
- the contract is wholly or partly funded by government funding (or a type of funding allowed by regulations), and the funding is for a period of more than two years, and there are no reasonable prospects that the funding will be renewed after that period, and
- a modern award covering the employee permits the employee to be employed for more than two years under a fixed term contract, a renewable contract and/or a consecutive contract.
ANTI- AVOIDANCE
Employers are prohibited from taking the below action to avoid the new provisions:
- terminating the employee’s employment for a period and then re-engaging the employee again for the same duties to break the continuity of their employment artificially
- delay re-engaging the employee, to artificially break the continuity of their employment
- ends one employee’s employment in accordance with the terms of their fixed term contract, and engages another employee to do the same or similar work, so as to avoid making the first employee permanent
- artificially changes the work duties of the employee between two contracts, so that the employee could not be said to be performing the same or similar work for the employer; and
- otherwise, alter the employment relationship
FIXED TERM CONTRACT INFORMATION STATEMENT
The Fair Work Ombudsman will be required to develop a Fixed Term Contract Information Statement that details the fixed term contract limitation, exceptions, and dispute resolution procedure.
Employers will be required to provide this statement to new employees who enter a fixed term contract (whether or not one of the exceptions applies). This is to be provided before, or as soon as reasonably practicable to do so after the contract is entered into.
WHEN DO THESE PROVISIONS START?
There is a transition period applicable for these changes to the FW Act and only applies to contracts entered into after the provisions commence unless a successive contract is entered into (for example, if an employer enters into a new contract with an employee after commencement, the pre-commencement contract will count towards assessing if there have been more than two contracts).
The above provisions will commence on 7 December 2023.
The bottom line: These amendments will limit fixed term contracts being used for the same role beyond two years or two contracts – whichever comes first.
Have a tricky issue at work? Call our advice line on 1800 505 529.
Disclaimer: While all due care has been taken in the preparation of this information, it is believed to be accurate but no warranty of accuracy or reliability is given and no liability is accepted for errors or omissions or loss or damage suffered as a result of a person acting in reliance thereon. This information is not legal advice. If a legal opinion is sought please contact your legal advisor.
