New restrictions on fixed-term contracts
Summary
The new restrictions come into effect on 6 December 2023.
In summary, 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’.
Failure to comply with these changes will expose employers to general protection claims in the Fair Work Commission (FWC).
Background
The Secure Jobs, Better Pay Act amends the Fair Work Act 2009 (Cth) (FW Act) to include new obligations in respect of fixed-term employment contracts. Generally speaking, the new provisions limit the use of fixed-term contracts to a period of two years (with several exceptions).
Generally, a "fixed-term employment contract" encompasses true fixed-term contracts (i.e. contracts that contain a term that ends the employment after a certain period and cannot be terminated at an earlier date) as well as maximum-term contracts (i.e. contracts that may be terminated on notice prior to the expiry of the term).
What are the 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.
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. 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.
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). 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.
What actions should I take?
Before 6 December 2023, you should:
Review the manner in which you are utilising fixed-term employees.
Update standard form contracts to amend fixed-term clauses.
Identify any relevant exceptions that apply to your organisation, and prepare and implement guidelines and controls for when fixed-term contracts can be offered and when they expire.
After 6 December 2023, you should:
Ensure fixed-term employees are provided a Fixed Term Contract Information Statement upon commencement.
Ensure the reasons for engaging an employee on a fixed-term contract are clearly documented, particularly in the case of second fixed-term contracts.
For further information, please reach out to a member of our team.
Chris Burrell
Partner
chris@fuselaw.com.au
+61 417 832 153
Kate Cantrell
Partner
kate@fuselaw.com.au
+61 401 370 179