Get your fix by December 6: Fixed term employment contract reforms commences

From 6 December 2023, the restrictions on fixed term employment contracts set out in the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Amending Act) come into effect. In a nutshell, the Amending Act limits the ability of employers to utilise fixed term contracts for periods greater than two years (with limited exceptions). Non-compliance with the obligations imposed by the Amending Act may result in the automatic conversion of employees from fixed term contracts to permanent contracts in certain circumstances.

Key takeaways

Employers can prepare for the amendments by:

• reviewing current procedures in relation to the use of fixed term contracts and considering whether these procedures will need to change
• considering whether any of the exemptions apply on a case-by-case basis
• amending current fixed term templates to ensure compliance with the new restrictions
• providing new employees on fixed term contracts with a Fixed Term Contract Information Statement on commencement of their employment.

Key changes

A fixed term contract is defined in the Amending Act as a contract that terminates at the end of an identifiable period, regardless of whether the contract includes other terms that provide circumstances for it to be terminated earlier. This is drafted to include both fixed term contracts and maximum term contracts.

The Amending Act imposes a suite of limitations upon employers entering fixed term contracts, they are:

• time limitations: A fixed term contract commencing following the Amending Act coming into effect cannot be for longer than two years
• renewal limitations: A fixed term contract cannot be extended or renewed more than once, or for a period exceeding two years in total
• consecutive contract limitations: An employer may not engage an employee on a fixed term arrangement if the contract is for substantively the same type of work, there is not a substantial break in the employment relationship between the two contracts, and if:        
• the combined duration of employment from the previous contract and the new fixed term contract exceeds two years
• the new fixed term contract can be renewed or extended
• the previous fixed term contract was extended
• there was an initial fixed term contract (prior to the previous contract) that:
  • primarily involved the same work
  • demonstrated continuity in the employment relationship during the period (if any) between the initial and previous contracts.

The Amending Act contains anti-avoidance provisions which prohibit employers from taking actions to circumvent the new restrictions, including:

• terminating an employee’s employment for a period
• delay re-engaging an employee for a period
• ending one employee’s employment in accordance with the terms of their fixed term contract, and engaging another employee to do the same or similar work
• changing the nature of the work or tasks the employee is required to perform
• otherwise altering the employment relationship.

Under the Amending Act, employers will also be required to provide employees engaged on fixed term contracts with a Fixed Term Contract Information Statement (FTCIS), which the Fair Work Ombudsman will provide from 6 December 2023. Employers are obliged to give employees the FTCIS before their employment or as soon as possible after they commence.

Failure to comply

If an employer fails to adhere to the limitations and an exemption does not apply, the term of the contract which imposes the ‘fixed term’ will be rendered inoperable and will have no effect. The rest of the contract will remain valid. This means that effectively, fixed term employees will be converted to and considered to be permanent employees in accordance with the Amending Act. 

Exceptions

A range of exceptions apply to the restrictions imposed by the Amending Act. The new restrictions will not apply if the employee is:

• engaged to perform a distinct and identifiable task involving specialised skills
• engaged under a training arrangement (i.e. an apprenticeship)
• engaged to undertake work during a peak demand period
• engaged to undertake work during emergency circumstances or the temporary absence of another employee
• earning above the high-income threshold under the contract (currently $167,500)
• appointed to a governance position which is held for a limited time according to the governing rules of a corporation or association
• performing work that is wholly or partly government-funded for more than two years and there is no reasonable prospect that the funding will be renewed at the end of that period
• covered under a modern award that permits the use of fixed term contracts.

Fixed term contracts regulation

On 23 November 2023, the Minister for Employment and Workplace Relations released the Fair Work Amendment (Fixed Term Contracts) Regulations 2023 (Regulations). The Regulations delay the commencement of the limitations of fixed term contracts for certain industries. Further, the Regulations clarifies how to calculate the high-income threshold exception if an employee works less than full-time hours or for only part of the year.

If you have any questions or wish to discuss what the changes mean for your organisation, please get in touch with our team.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Rachel Drew

Rose Dimitrious

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