New rules for fixed term contracts

Do you utilise fixed term contracts in your business?

If so, you will need to comply with new controls on fixed term contracts that the Federal Government has legislated under the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022.

The changes take effect from 6 December 2023.

Limits on fixed term contracts 

The legislative change limits the use of fixed term contracts for the same role to a maximum of  two years (including renewals) or two consecutive contracts – whichever is shorter.

So, for example, if an employee has two back-to-back fixed term contracts of 6 months each, the maximum engagement on fixed term contracts would be 12 months because there are two contracts and the aggregate period is less than 2 years.

On the other hand, if an employee had two back-to-back contracts of 18 months each, the maximum period of engagement would be 2 years.

Once an employee continues in employment beyond the available limit on fixed term contracts, they will be deemed to be a permanent employee.

The new rules will only apply to new contracts entered into on or after 6 December 2023 but any pre-exisiting fixed term contract will count for the purposes of assessing whether there have been more than two contracts.

Exceptions

There are a range of exceptions that allow fixed term contracts beyond these limits and these include:

• performing a discrete task for a fixed period,
•  apprentices and trainees,
• undertaking essential work during a peak demand period (such as a harvest),
• temporarily replacing another employee on long leave (such as parental or workers compensation leave), or
• where the employee has a remuneration level above the high income threshold ($167,500 from 1 July 2023).

Any such exceptions will have to be genuinely necessary and appropriate for the particular circumstances.

Exemptions also apply where fixed term contracts are permitted by an applicable modern award, and the Minister can make regulations to exempt certain types of contracts, for example toaddress sector specific arrangements.

Dispute resolution

Where employees and employers have a dispute about a fixed term contract that cannot be resolved at the workplace level, the Fair Work Commission is empowered to resolve them via conciliation, mediation or consent arbitration. In addition, the Federal Circuit and Family Court of Australia and Magistrates Courts can deal with disputes under the small claims procedure.

Fixed Term Contract Information Statement

Employers are required to provide a Fixed Term Contract Information Statement (the Statement) to all employees entering a fixed term contract. The Statement will be developed by the Fair Work Ombudsman and will set out details on the fixed term contract limitations, exceptions and the dispute resolution procedure. 

Conclusion

If you use fixed term or maximum term contracts in your business, you need to review those against the new rules and ensure that your policies and processes and contracts comply with the new legislative requirements.

If you are going to continue using fixed term contracts, you need to ensure that your processes include provision of the Fixed Term Contract Information Statement to be produced by the Fair Work Ombudsman. 

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