Blog

New Rules for Fixed Term Employment Contracts

  • 18 June 2024
  • Studio Legal

Written by Sophie Jones and Principal, Jennifer Tutty.

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

A general understanding of employment law is important for all employees and employers. Therefore, we recommend spending some time learning what these new rules mean for you.

‘Fixed-term employment contracts encompass true fixed-term contracts (contracts that contain a term that ends the employment after a certain period and cannot generally be terminated at an earlier date) as well as maximum-term contracts (contracts that may be terminated on notice prior to the expiry of the fixed end date).

The changes were instituted through the Federal Government’s Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 which amends the Fair Work Act 2006 (Cth).

With a vision to target the misuse of fixed term contracts, improve job security and promote gender equality, there are a number of vital changes to be across, whether you’re an employer, or an employee seeking to understand your rights!

What’s changing?

There are three new limitations on fixed term contracts coming into play:

– time limitations;

– renewal limitations; and

– consecutive contract limitations.

Time limitations

A fixed term contract can’t be longer than 2 years, including extensions and renewals.

Renewal limitations

A fixed term contract cannot have any option to:

– Extend or renew the contract so the period of employment lasts for longer than 2 years; or

– Extend or renew the contract more than once.

Consecutive contract limitations

An employer can’t employ someone on a new fixed term contract if:

– The contract is for mainly the same work as a previous fixed term contract, and

– There isn’t a substantial break in the employment relationship between the previous and new contracts, and

– Any of the following apply:

  1. The total period of employment for the previous contract and the new fixed term contract is more than 2 years.
  2. The new fixed term contract can be renewed or extended.
  3. The previous fixed term contract was extended.
  4. There was an initial fixed term contract in place (before the previous contract) that was for mainly the same work, and there was continuity of the employment relationship from the period of time (if any) between the initial contract and the previous contract.

Anti-avoidance provisions

The new rules also include anti-avoidance provisions to prevent employers from attempting to circumvent the changes. These ensure employers of a fixed term employee cannot:

– 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.

Employers who conduct any of the above, may face an adverse action claim.

Important implications

For fixed term contracts entered into before 6 December 2023, these limitations do not apply, though these contracts will be considered when applying the consecutive contract limitation for a new fixed term contract entered into on or after 6 December 2023.

If a contract doesn’t meet these new rules, the contract’s end date will no longer apply, and the employee will be treated as a permanent employee.

Other terms and conditions of employment under the contract will still apply, including entitlements from any relevant legislation, award, agreement or employment contract.

Employers could also be at risk of civil penalties of up to $93,900 for corporations and $18,780 for individuals for contravention of these provisions.

Fixed Term Contract Information Statement

From 6 December 2023, employers must also give employees engaged on new fixed term contracts a Fixed Term Contract Information Statement (FTCIS) in addition to the Fair Work Information Statement.

The FTCIS is available for download from the Fair Work website here.

Employers must also provide fixed term employees with the standard Fair Work Information Statement as well (so to be clear, there are now 2 statements to provide!).

Are there any exceptions?

Some exceptions apply. The new rules will not apply where the fixed contract:

– is for the performance of only a distinct task using specialist skills;

– relates to a training agreement (i.e. apprenticeship or traineeship);

– is for essential work during a peak demand period;

– is for work undertaken in emergency circumstances or temporary absences;

– relates to a high-income earning employee ($167,500 p/a full time though this will likely increase in July 2024);

– relates to a time limited governance position;

– is funded partially or completely but the government; or

– where a modern award permits the term.

For more information on the exceptions, go to Fair Work’s website here.

Delay of commencement of changes in certain industries

The commencement of the fixed term changes have been delayed for some industries until 1 July 2024. These include employees in the following categories:

– organised sport, including athletes, coaches, performance support professionals, match officials, governing bodies and their members;

– organising bodies for international sporting events which are not regularly held in Australia,

– live performance

– higher education; and

– employees funded by charities, including philanthropic funding, and testamentary gifts or contributions for charitable purposes.

A note on the high income threshold

The high income threshold changes each year. From 1 July 2023, it is $167,500.

According to Fair Work, for the purposes of the high income employees exception, the high income threshold for part time employees or employees working less than a year is calculated by:

– considering the number of hours that the employee is required to work under the contract in that year;

– dividing that number by the number of hours that a full-time employee would work in that year (rounding to 3 decimal places); and

– multiplying the result by the high income threshold for the financial year in which the contract is entered into.

To determine the number of hours that a full time employee would work in a given year:

– take the number of hours the employee is required to work under the agreement or award that applies to the employee

– if no enterprise agreement or award applies, take the number of hours of comparable full-time employees working for the same employer.

If the number of hours can’t be worked out by either of the above methods, then the number of hours a full time employee would work in a given year is taken to be 38 hours per week.

Source reference: Fair Work Amendment (Fixed Term Contracts) Regulations 2023 2.14

Action

We suggest that employers now take the following steps:

– Review employment contract templates to ensure they do not contain any terms that are inconsistent with the new rules.

– Put thought into the hiring of employees on fixed term or maximum term contracts and seek legal advice if you are confused as to whether hiring someone on a fixed or maximum term basis will infringe the new laws.

– When a fixed term or maximum term contract is due for renew, ensure that the renewal of the employee’s contract does not breach the new rules.

– Provide the new Fixed Term Contract Information Statement to all employees entering into a fixed term contract on or after 6 December 2023.

Further Information

For more information on the new rules for fixed term employment contracts, head to the Fair Work website.

To learn more about employment law, check out our blogs:

“Do You Have to Pay Interns?” – What Businesses Need to Know About Hiring Interns.

Are You Hiring Contractors? The New Legal Test Explained.

Modern Awards Explained: A Guide for Business Owners.

Our team is available to review and amend your contracts to ensure compliance with Australia’s unfair contract terms regime. Please contact us through our online form or via email at hello@studiolegal.com.au.

Written by Sophie Jones and Principal, Jennifer Tutty.

Published 5 December 2023.

Photo by Markus Winkler on Unsplash

DISCLAIMER

The information in this article is of a general nature. It does not constitute formal legal advice and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.