Fixed Term Contracts

Changes are happening to fixed-term contracts. Another significant modification to the Fair Work Act 2009 (Cth) (FW Act), brought about by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 enacted by the Federal Government, revolves around employers’ capacity to excessively utilise fixed-term employment agreements. This will come into effect in December 2023. 

These alterations arise from the notion that recurrent or continuous fixed-term contracts fail to provide job security. 

Secure Jobs, Better Pay legislation changes that relate to Fixed Term Contracts: 

• Imposes substantial regulations and limitations on the use of fixed-term contracts, with the new legislation aiming to confine the maximum period of employment to two years under  that type of contract. 
• Incorporates certain exemptions to the limitations on fixed-term contracts. 
• Criminalises breaches of the prohibition on the improper application of fixed-term contracts and introduces measures to counteract evasion. 
• Establishes mechanisms to apprise employees of their entitlements and to enable the Fair Work Commission to resolve disputes concerning fixed-term contracts. 

Before we go into the finer details, let’s look at the following first.

A Recap: What Constitutes a Fixed-Term Contract?  

A fixed-term contract stipulates that employment will terminate, as mutually agreed, upon the conclusion of a definite time period. 

Certain fixed-term contracts do not stipulate any notice period. Conversely, other fixed-term contracts bestow the right to terminate the contract with prior notification before the agreed-upon culmination date. These contracts are occasionally denoted as “maximum-term” or “outer limits” contracts. 

Regardless of whether a contract incorporates a notice period, there has been minimal to no regulation of fixed-term contract utilisation under the FW Act. Most employers and employees have enjoyed the liberty to repeatedly engage in such arrangements, often without apprehension of repercussions or constraints. 

A particular risk has been the sequential employment of consecutive fixed-term contracts. The more these contracts persist, the riskier it is for an employer to rely solely on the contract’s end date to end the employment relationship. In such cases, the employer could still be accused of “dismissal,” making them susceptible to claims of unfair dismissal under the FW Act.

What’s in Transition?  

Upon the commencement of the FW Act amendments (with certain restricted exceptions), it will be deemed unlawful for an employer to enter into a fixed-term employment agreement in various situations, specifically when the fixed-term contract: 

• Specifies a duration that is greater than two (2) years, including both the identifiable span and any feasible extension or renewal duration. 
• Entails an option or entitlement for multiple renewals or extensions, irrespective of the duration of the first contract whether it be for a short period of time or a longer period of time. 

Similarly, it will be unlawful for the parties involved to consecutively execute a series of fixed-term contracts in scenarios where: 

• The cumulative duration of the fixed-term contracts amounts to two (2) years. 
• Either the preceding or ongoing contract permits renewal or extension. 
• The employee has previously been engaged through two consecutive fixed-term contracts. 

Breaching these new regulations carries two consequences for employers: 

• The employer commits an offense under the FW Act, resulting in potential civil penalties. 
• The stipulation in the contract dictating the termination of employment at the contract’s conclusion becomes null and void. 

These new  regulations also comprise anti-avoidance provisions that prohibit employers from circumventing these prohibitions. For instance, it will be illegal for employers to terminate an employee, postpone re-engagement, enlist another individual for comparable work, or alter the nature of assigned tasks to avoid this new legislation.  

Furthermore, employers are required to provide new employees with a prescribed Fixed Term Contract Information Statement. This will be available closer to the implementation ate. Failure to fulfill this obligation will lead to civil penalties and would also be considered illegal. 

Do Exceptions Exist? 

Indeed, several exceptions; however, there is not much room for negotiation.  

Among the most notable exceptions are circumstances where the employee is engaged: 

• In a casual capacity. 

• For a distinct and specific task demanding specialised skills. 
• In conjunction with a training arrangement (e.g., apprenticeships). 
• To fulfill vital roles during peak periods (e.g., seasonal labor). 
• To execute tasks during emergencies. 
• In lieu of another employee’s temporary absence (e.g., parental leave). 

• With earnings surpassing the high-income threshold (currently set at $162,000). 
• In relation to a position funded partially or wholly by government allocations. 
• In alignment with the governance regulations of a corporation or other association, where these regulations stipulate the duration of the appointment. 

While there are other exceptions, the main goal is to discourage employers from using fixed-term contracts for workforce management, except in limited cases. The emphasis is on permanent, secure employment, with fixed-term contracts primarily for short-term arrangements or high-earning senior employees.

Why Does This Matter?

Employers found in violation of these new statutes will face civil penalties. In the case of a deems  “serious contravention of the Fair Work Act,” the maximum penalty increases significantly. 

Moreover, if a contract doesn’t meet these laws, the fixed-term duration becomes invalid and unenforceable. Essentially, the contract remains in force beyond the specified term. This allows employees to use its terms and conditions even after the unlawful fixed-term period ends.

How Can Employers Prepare for These Changes?  

To brace for these impending changes, employers should: 

• Assess their existing employment contracts and workforce management methodologies, identifying employee groups currently engaged or regularly involved in fixed-term arrangements (and consider the viability of continuing this practice). 
• Seek HR Assistance to ascertain the impact of these changes on their existing employment arrangements, evaluate potential exemptions, and outline measures to pre-empt future uncertainty, liability, and penalties. 
• Devise or update recruitment policies and protocols that ensure the lawful utilisation of fixed-term contracts, including mechanisms for monitoring the duration of such arrangements and contingency plans for contract expirations. 
• Guarantee that employees are provided with the Fixed Term Contract Information Statement before or promptly after entering any fixed-term agreement. 

This could seem too much for businesses, but of course, we are here to help. Reach out to our team now or email contact@nowactually.com.au for expert advice and guidance on fixed-term contracts.