Upcoming Changes to Fixed Term Employment Contracts

Fixed Term Contract Termination: Legal Or Not?

A fixed term employment contract is an employment agreement with a set end date, or one that stipulates an event that will trigger termination. A similar type of contract, called a maximum term contract, also has an end date but may be terminated earlier by the parties. These contracts are often liked by bosses because, if executed properly, the employment can come to an end at the agreed date without issues arising regarding notice periods, redundancy pay, or unfair dismissal.

The Federal Government has laid criticism on these contracts for being overused to get around these protections and for generating job insecurity. These factors are exacerbated when employers attempt to keep employees on fixed term contracts over extended periods, a strategy that has come at the expense of permanent positions. To address this, the government has introduced changes that reduce the scope of fixed term and maximum term contracts and offer additional protections to workers on these contracts. These changes passed on 6 December 2022, and are coming into force on 6 December 2023.

As of 2022, there were 130,000 Australians working on a fixed-term contract, according to the Australian Bureau of Statistics. Tony Burke, Federal Industrial Relations Minister, has expressed concern that the number of such contracts has grown by over half since 1998. He also pointed out that more than half the people on fixed term contracts are women and that over 40% have been with the same employer for two or more years.

This article will explain the changes and what they mean for employers and employees.

What is a fixed term contract?

Fixed-term contracts are contracts of employment that limit an employee’s employment to a specific period of time. Fixed terms are generally used when employees are required to work on a specific project, and therefore they’re generally limited to a specific timeframe to complete that project. 

For employers they provide a cost-effective way to expand the number of employees they have during busy periods and during large projects. For example, retailers will often hire employees over Christmas on fixed-term contracts in order to manage the holiday rush without the burden of keeping those employees during quieter periods.

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A Summary of the Changes to Fixed Term Employment Contracts

The following rules come into force on 6 December 2023.

How long is too long? 

A fixed-term contract can’t last for more than two years, even if it gets extended or renewed.

How many times can it be renewed? 

A fixed-term contract can’t be extended or renewed so that it lasts longer than two years, and it can’t be extended or renewed more than once.

Can you keep re-hiring someone on a fixed term contract? 

An employer can’t hire someone on a new fixed term contract doing the same job as a previous fixed term contract if there isn’t a substantial break between contracts, and taken together, these terms would exceed two years or lead to more than one renewal.

Fixed Term Contract Information Statement

Employers will be required to provide all their employees on fixed term contracts with a Fixed Term Contract Information Statement. This is in addition to the Fair Work Information Statement. This new statement will be available on the Fair Work website from the 6th of December.

Exceptions

There are exceptions to the application of these restriction where:

  • The contract is for the performance of specific tasks using special skills; ie project-based.
  • The contract is for learning on the job, like an apprenticeship or traineeship.
  • The salary for the role exceeds the annual income threshold.
  • The job is to cover extra work during busy periods or emergencies or to cover someone’s absence (like maternity leave).
  • The government has created a special funding exception.
  • The role has a built-in time limit, like a corporate governance position with a constitutionally set term.
  • A modern award explicitly makes an exception to the rules.

Enforcement

These rules apply to all contracts made on or after 6 December 2023. Contracts made before that date are not required to comply, but for the purposes of establishing whether subsequent contracts are in breach of the rules, contracts made before this date will be counted.

If a contract doesn’t follow these new rules, its end date will not be considered valid. In other words, once a breach of any kind has occurred and the employee continues to be employed by the company, the contractual arrangement will be considered equivalent to a permanent employment agreement with no end date. However, other provisions will be valid, including entitlements from legislation, awards of agreement. 

Employers who don’t meet these obligations may be subject to penalties.

What do I need to do?

If you have any employees on fixed term contracts, you should review those contracts to make sure that they comply with the legislative requirements laid out in this article. Lawpath’s Fixed Term Employment Agreement complies with this new regime. It should be noted that it is not enough for the contract to adhere to the requirements; the whole of the employment arrangement falls under the requirements, including the length of time that the employee actually performs work for the company and whether the employer gave the employee a legitimate expectation that their employment would be extended or converted.

More generally, you should also make sure that you are on top of your employees’ rights as outlined in the National Employment Standards, relevant awards and case law. For instance, an employee under a fixed term employment contract may be considered to have rights equivalent to those under a permanent contract where they are given the expectation that the employment will continue after the term has come to an end. You should also understand the difference between a fixed term contract and a maximum term contract.

And if you wish to rely on an exception to the new regime, we recommend speaking to a lawyer to ensure you can actually rely on such an exception.

If you are an employee on a fixed term contract, you should be aware of the rights that are now available to you under this new regime and ensure that your overall employment arrangement adheres to those rights.

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