Changes to fixed term employment contracts

From 6 December 2023, new rules apply when engaging employees on fixed term contracts.

If a fixed term employment contract does not comply with the new limitations, the employee’s employment will continue beyond the intended end date of the contract, as will the employee’s right to receive entitlements.  This effectively means that the employee will be employed on a permanent basis.

What is a fixed term contract?

A fixed term contract terminates at the end of a set period, for instance 12 months.

What are the changes?

The new rules impose the following changes:

• a requirement for employers to provide a Fixed Term Contract Information Statement (FTCIS) to employees they are engaging on a new fixed term contract.  (It is also necessary for the employer to provide a Fair Work Information Statement to the employee (FWIS));
• Time limits on fixed term contracts;
• Limitations on renewals;
• Limitations on consecutive contracts.
• Anti-avoidance protections have been introduced and if an employer contravenes the protections, it may give rise to an employee taking legal action against the employer.

However, various exemptions may apply which are outlined further below.

Limitations

Time limits

A fixed term contract cannot exceed a 2 year period, including any extensions or renewals of the contract.

Renewals

A fixed term contract cannot include an option to:

• extend or renew the contract so the employment period exceeds 2 years, or
• extend or renew the contract more than once.

Consecutive Contracts

An employee cannot be offered a new fixed term contract if:

1. Their previous contract was also a fixed term contract; and
2. Both their previous contract and the new contract are for mainly the same work; and
3. There is substantial continuity in the employment relationship between the previous and new contracts, and
4. Any of the following applies:
   • the previous contract contained an option to extend that was used
   • the total period of employment exceeds 2 years for both the previous and new fixed term contract
   • the new fixed term contract contains an option to extend or renew, or
   • there was an initial contract in place (before the previous contract):
     • that was for a fixed term,
     • that was for the same or similar work, and
     • where there was substantial continuity in the employment relationship.

However, these limitations do not apply to casual employees.

Employers cannot intentionally avoid the anti-avoidance protections

There are anti-avoidance protections which include:

• ending the employee’s employment or not re-employing them for a period of time
• not re-engaging the employee and employing someone else to do the same or substantially similar work instead, or
• changing tasks or nature of work that an employee undertakes or changing the employment relationship.

If an employer does any of these things, it may also constitute adverse action which may give rise to an employee taking legal action against the employer.

Exceptions to limitations

There are some exceptions to the abovementioned limitations on fixed term contracts:

• Specialised skills for a specific task (eg. for a specific project)
• Training arrangements, such as an apprenticeship
• Essential work, for instance during peak demand periods
• Emergency or temporary circumstances or to replace someone who is temporarily away
• High income employees where the guaranteed salary exceeds the high income threshold (currently $167,500) (pro rata for part-time employees or employees that work for less than a year)
• Where a position is government funded (completely or in part), the funding is likely to be for more than 2 years and the funding is unlikely to be renewed afterwards.
• A contract for a governance position for a limited time
• If an award covers the employment and permits any of the circumstances limited by the new rules.

What happens if a fixed term contract doesn’t meet the limitations?

The end date of the contract will no longer apply.  Accordingly, the contract will not automatically end at the end of the contracted period.  This means that the other terms and conditions of the employment contract will continue to apply including entitlements from any relevant legislation, award, employment contract or agreement. 

Key Takeaway

Employers should be careful when hiring employees on fixed term contracts, because if they don’t meet the abovementioned limitations (and an exception does not apply), they will be effectively hiring a permanent employee.  

You should always obtain legal advice that is specific to your circumstances.

If you have any queries regarding employment or other legal matters, please do not hesitate to contact us. You can call us on 03 9548 5500.