New restrictions on fixed term employment contracts

From 6 December 2023, new limitations will apply to fixed term contracts of employment. Broadly, the changes will:

• limit the maximum duration of fixed term contracts to two years;
• provide robust restrictions to prevent employers from circumventing these limitations; and
• require employers to provide employees on new fixed term contracts a ‘Fixed Term Contract Information Statement’.[1]

Failure to comply with these changes will expose employers to General Protections claims in the Fair Work Commission (Commission).[2]

Background

Generally, a fixed term contract of employment specifies an end date for employment. Similar to a fixed term contract is a maximum term contract, which has a fixed end date but may be terminated by the parties before that time, and is also affected by the changes. These types of contracts are often desirable to employers as they do not have to abide by certain protections afforded to indefinite employment relationships, such as minimum notice for termination and redundancy pay.

The current Federal Government has criticised the overuse of fixed term contracts as exacerbating job insecurity where they cover an extended period or where an employment would otherwise be ongoing.[3] These changes are intended to restrict the use of fixed term employment contracts, whilst preserving legitimate commercial use of such arrangements.[4]

New restrictions

Fixed term contracts will be limited in duration. Employers will no longer be able to employ an employee on a fixed term contract that is for longer than two years’ duration, including with extensions, and cannot be extended more than once.[5]

Moreover, employers will be restricted from circumventing this prohibition by re-employing an employee on a fixed term contract for a new role that is substantially similar role as previous fixed term contracts.[6] For the restriction to apply, there must be substantial continuity of the employment relationship between the previous contract ending and the contract commencing. Further, it must be that the total period of the contract is two years or greater, the new contract is able to be renewed or extended, or that a previous contract was extended.

Contracts that fail to comply with these new provisions will remain valid except for the terms outlining the expiration of the contract, which will be void and unenforceable. This will usually make the fixed term contract an indefinite contract of employment.

Employers may contravene anti-avoidance provisions where an employer engages in any of the following to avoid the new restrictions:

• terminate an employee’s employment;
• delay re-engaging an employee;
• not re-engaging an employee and instead engaging another person to perform the same, or substantially similar, work for the person as the employee had performed for the person; or
• change the nature of the work or tasks the employee is required to perform for the person.[7]

An exception may apply in the following circumstances:

• the employee’s earnings under the contract are above the high income threshold (currently $167,500);
• the employment is for a distinct and identifiable task involving a specialised skill;
• the contract is for a training arrangement;
• the contract is for essential work during a peak demand period, emergency circumstances or due to a temporary absence of another employee;
• the position is a governance position that has a time limit imposed by the governance rules of a corporation; or
• an applicable modern award permits the use of fixed term contracts.[8]

Fixed Term Contract Information Statement

Employers will be required to give employees they are engaging on new fixed term contracts a ‘Fixed Term Contract Information Statement’ (FTCIS).[9] This is to be given to employees before or a soon as reasonably practicable after the commencement of employment. The FTCIS is currently not available, but will be released on the Fair Work Ombudsman website. Failure to provide employees with a FTCIS will give rise to civil penalties.[10]

Conclusion

The commencement of these provisions represents the final part of the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) to come into force, so as to give employers sufficient time to comply. From 6 December 2023, the Commission will be able to hear disputes about fixed term contracts. Relevantly, these changes will only apply to contracts entered into after 6 December 2023.[11]

It is critical that employers make arrangements now to review their contracts of employment before the changes come into force. The nature of this topic can be complex and employers may find it challenging to navigate these developments. If you require advice on the above, Gadens is well positioned to provide you with tailored advice.

To enquire as to how Gadens may be able to assist, please contact Jonathon Hadley in Brisbane by email jonathon.hadley@gadens.com or phone +61 7 3231 1653.

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Authored by:
Jonathon Hadley, Partner
Blade Atton, Associate
Liam Elliott, Paralegal

[1] Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) (Amending Act)
sections 438-445.

[2] Ibid section 441; Fair Work Act 2009 (Cth) after 6 December 2023 (FW Act) sections 333J to 333k.

[3] Explanatory Memorandum, Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 (Cth), [558]-[559].

[4] Ibid.

[5] Amending Act section 441; FW Act section 333E.

[6] Amending Act section 441; FW Act section 333H

[7] Amending Act section 441; FW Act section 33H.

[8] Amending Act section 441; FW Act section 333F.

[9] Amending Act section 441; FW Act section 333J to 333K.

[10] Ibid.

[11] Amending Act section 2.