New regulations for fixed term contracts commence today

Utilising employees on a fixed term basis is an important tool for many businesses to undertake projects, cover long-term absences, and manage their workforce. However, as of 6 December 2023, new restrictions on the operation and duration of fixed term contracts have commenced, after being introduced as part of last years’ Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth).

These alterations carry profound implications for employers, including civil penalties for attempting to avoid these restrictions, so it’s important to understand them and take proactive measures to ensure your business’ compliance.

So, what do employers need to know about the imminent changes?

Understanding the changes

The amendments provide for three new restrictions the length and use of fixed term contracts for full-time and part-time employees, unless they fall under specific exemptions. The rules are as follows:

• Maximum 2-year period: the duration of a fixed term contract cannot be for a period greater than 2 years, including any extensions or renewals.
• Limit on renewals: fixed term contracts cannot contain an option to:
  • extend or renew that would result in a contract period greater than 2 years; or
  • extend or renew the contract more than once.
• Limit on consecutive contracts: a new fixed term contract (current contract) that replaces a previous fixed term contract (previous contract) for the same or substantially similar work where there is no substantial break between contracts is prohibited where any of the following apply:
  • the previous contract had an option to extend that was used;
  • the total period of employment across both contracts would be greater than 2 years;
  • the new contract contains an option to renew or extend; or
  • there was another fixed term contract prior to the ‘previous contract’ for the same or similar work without a substantial break in service between contracts.

Employers will also need to provide a Fixed Term Contract Information Statement to all employees commencing on a fixed term contract. The Information Statement is published by the Fair Work Ombudsman and can be accessed here.

These changes only apply to new contracts executed on or after 6 December 2023. However, as mentioned, previous contracts will still be relevant for assessing whether a new contract  contravenes these restrictions. For example, if a contract is renewed after 6 December 2023, the previous contract will still count towards assessing whether there have been more than two consecutive contracts entered into.

Exemptions

The legislation provides limited exemptions to the above restrictions. These include where the fixed-term contract:

• relates to a distinct and identifiable task that requires specialised skills, such as where an IT professional is working on a project;
• relates to training arrangements such as apprenticeships or traineeships;
• relates to an employee earning more than the high-income threshold (currently $167,500);
• relates to essential work during a peak demand period ;
• relates to undertaking work during emergency circumstances or temporarily replacing an absent employee (i.e. due to parental leave, or an extended period of illness or injury);
• relates to a position that is subject to government funding payable for more than 2 years with no reasonable prospects of the funding being renewed;
• relates to a governance position that has a time limit under the government rules of a corporation or association of persons;
• is permitted to include terms contrary to the new restrictions by the modern award covering the employee;
• is of a kind prescribed by regulation.

As of 23 November 2023, the Minister for Employment and Workplace Relations introduced regulations, covering additional areas including:

• organised sport;
• high-performance international sports events;
• positions funded by registered charities;
• the live performance and higher education sectors.

What happens if a fixed-term contract is unlawful?

Where a fixed term contract breaches the new restrictions, the contract’s end date will be considered invalid, with no impact on the validity of any other terms. Essentially, this means the employee will treated as a permanent and on-going employee with all of the relevant protections and entitlements attaching to this status, such as protection from unfair dismissal.

Meanwhile, employers breaching the new fixed-term contract provisions may face financial penalties or up to $16,500, or $165,000 for serious contraventions. Similar penalties will apply where an employer alters the employment relationship to avoid the effects of these new restrictions, such as by dismissing an employee, delaying re-employment, engaging someone else to perform substantially similar work, or altering the nature of the employee’s work or the employment relationship.

The Fair Work Commission will have the ability to resolve disputes related to fixed term contracts via conciliation, mediation or consent arbitration.

What actions should employers take?

To ensure your business isn’t caught out by these changes, employers should take the following steps:

1. Identify all employees currently engaged under fixed term contracts that may be subject to these restrictions (i.e. full-time and part-time employment contracts with a fixed term or expiry/termination date)
2. Assess if any exemptions apply to these contracts.
3. Consider transitioning unexempted fixed term employees to alternative arrangements.
4. Incorporate the Fixed Term Contract Information Statement into hiring processes to avoid penalties for failing to provide the Statement to new fixed term employees.

Further guidance

There could be major consequences for businesses that fail to adapt their practices in response to these amendments, with the possibility of employees unintentionally gaining permanent employment, as well as liability to pay penalties. For further guidance on how to navigate these changes, please call NRA Legal on 1800 572 679.