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Limitations on fixed term employment contracts under the Fair Work Act 2009: is your business prepared?

On 7 December 2023, amendments to the Fair Work Act 2009 (Cth) (FW Act) relating to the use of fixed term employment contracts will take effect.1 Those amendments will significantly limit the circumstances in which businesses can engage employees on fixed term employment contracts.

What are fixed term employment contracts?

The new limitations apply to employment contracts that terminate “at the end of an identifiable period”, which includes employment contracts that terminate after a period of time, after the employee has completed a specific task (such as a distinct or identifiable project or job) or at the end of a specified season (such as the end of a fruit-picking season). The new limitations apply even if the employment contract can be terminated before the end of the identifiable period.2

While fixed term employment contracts have been traditionally understood as employment contracts that terminate after a period of time, this article uses the term fixed term employment contracts as referring to the broader range of employment contracts covered by the new limitations.

New limitations on fixed term contracts

From 7 December 2023 an employer will contravene the FW Act if:

  • they enter into a fixed term employment contract where the identifiable period is greater than 2 years3 (inclusive of any period for which the contract can be extended or renewed4);
  • they enter into fixed term employment contracts that can be extended or renewed more than once5;
  • they enter into successive fixed term employment contracts for the employee to perform the same or substantially similar work, there is continuity in the employee’s employment, and:

o the sum of the employment periods exceeds two years; or
o the new employment contract contains an option for renewal or extension;
o the previous employment contract contained an option for extension that was exercised; or
o there was a contract prior to the previous employment contract for the same work and there was continuity in the employee’s employment between those two contracts.6

Exceptions to the new limitations

It is important to note that these new limitations will not apply to contracts with certain categories of employees including, but not limited to:

  • casual employees;7
  • employees who earn more than the high-income threshold8(currently $167,500);
  • where an applicable Modern Award permits fixed term employment that would otherwise be prohibited under the Act;9
  • employees engaged to perform a distinct and identifiable task involving specialist skills;10
  • employees engaged to undertake work during emergency circumstances or during a temporary absence of another employee;
  • employees engaged to undertake essential work during a peak demand period;
  • employees employed to perform work that is partially or wholly funded by government, the funding is for more than 2 years, and there is no reasonable prospect that the funding will be renewed;11
  • governance positions that have time limits under the governing rules of a company or association.12

Fixed Term Contract Information Statement

Employers are required to provide all employees who enter a fixed term employment contract with a copy of the Fair Work Ombudsman’s Fixed Term Contract Information Statement.13

Consequences for contravening the new limitations

If employers contravene the new limitations on fixed term contracts:

  • the term of the contract that provides it terminates at the end of the identifiable period has no effect14 and the employee will continue to be employed but for an indefinite period;
  • employees, their union and the Fair Work Ombudsman will be able to commence proceedings in the Federal Court of Australia or the Federal Circuit Court of Australia and seek penalties up to $93,900 or, if the employer has knowingly or systematically contravened those prohibitions, penalties up to $939,000, and relief, including orders for compensation or reinstatement.

Employees may also refer disputes regarding the new limitations on fixed term contracts to the Fair Work Commission15, which will be able to arbitrate those disputes and make orders binding the parties.

What happens with existing fixed term contracts?

The limitations do not apply to fixed term contracts entered into on or before 6 December 2023. However, an employee’s service under fixed term employment contracts entered into on or before 6 December 2023 will count towards the 2-year period if they are offered a new fixed term employment contract on or after 7 December 202316.

Next steps

Businesses who engage employees on fixed term employment contracts will need to review their employment practices carefully to ensure that they comply with the new provisions. In particular, businesses will need to:

  • consider which of their employment contracts constitute fixed term employment contracts under the Act;
  • consider whether any existing fixed term employment contracts will not be able to be renewed or extended and make any necessary alternative arrangements;
  • consider whether any of the exceptions to the new limitations apply to their existing or future fixed term employment contracts;
  • ensure they do not inadvertently employ employees on a fixed term basis for more than 2 years; and
  • ensure that offers of fixed term employment contracts include a copy of the Fixed Term Contract Information Statement.

This would also be an opportune time for businesses to review and update their template employment contracts.

Bennett’s Employment Team can provide advice on the new legislative amendments and workplace relations issues generally. If you would like to discuss the new limitations on fixed term employment contracts, please do not hesitate to contact Stephen Kemp, Consultant and Head of Employment Law, or Nicholas Parkinson, Senior Associate.

Footnotes

  1. Schedule, 1 Part 10, Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022.
  2. s 333E(1)(b).
  3. s 333E(1), (2).
  4. s 333E(3)(a).
  5. s 333E(3)(b).
  6. s 333E(4), (5).
  7. s 333E(1)(c).
  8. s 333F(1)(e).
  9. s 333F(1)(h).
  10. s 333F(1)(a).
  11. s 333F(1)(f).
  12. s 333F(1)(g).
  13. s 333K.
  14. s 333G.
  15. s 333L.
  16. Schedule 1, Part 13, Div 8, cl 62.

Stephen Kemp

Consultant - Head of Employment Law

Nicholas Parkinson

Senior Associate

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.

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