Fixed and maximum-term contracts are changing. Here’s what you need to know

“A better deal and a better future” was how the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Act), was marketed towards Australian workers, and since its passing in December 2022, has started the biggest industrial relations reforms we’ve seen since the introduction of the Fair Work Act 2009 (Cth) (FW Act) in 2009. Not only has this act introduced a raft of significant changes impacting workplaces across Australia, but it also introduced of tighter restrictions on the use of fixed-term and maximum-term contracts.

And because these changes were announced almost a year ago and are only now about to become law, we’ve put together an in-depth guide on exactly what’s changing and what employers need to be aware of. Let’s get into it…

So, what are the changes?

A fixed-term employment contract specifies an end date for employment, whereas, a maximum-term contract also specifies an end date for employment, but allows the parties to terminate the contract before the specified end date. While fixed-term and maximum-term contracts allow employers the flexibility to engage staff on a needs basis, the Federal Government has criticised such use of contracts alleging it creates job insecurity where they’re used for the same role over an extended period or where employees are subject to rolling contract renewals for jobs that would otherwise be permanent.

Viewing this as a problem, the Government has introduced strict limits on the use of fixed-term and maximum-term contracts within the Act. These new laws prohibit an employer and an employee from entering a fixed-term or maximum-term contract in the following circumstances:

• where the contract is for a period greater than two years;
• if the contract provides for an option or right to extend or renew the contract more than once; or
• the employee has been engaged on consecutive fixed-term contracts for the same role and the total engagement is greater than two years.

If an employer enters a contract that contravenes these rules, the term of the contract that provides it will terminate at the end of an identifiable period is taken to have no effect (i.e., the employee becomes permanent), however, the contravention doesn’t otherwise affect the validity of any other term of the contract. The impact of doing this is that employees will gain access to entitlements including unfair dismissal, notice of termination, and redundancy payments from the start of employment.

Employers are also required to provide a Fixed-Term Contract Information Statement to all employees entering a fixed-term or maximum-term contract.

Entering into a contract that breaches such rules attracts a civil penalty, as does failing to give an employee the Fixed-Term Contract Information Statement. Civil penalties are currently up to $93,900 for a body corporate ($939,000 for a serious contravention) or $18,780 ($187,000 for a serious contravention) for individuals, including those who are knowingly involved in a contravention.

An employer who attempts to avoid the new provisions by engaging in any of the following may also be found to have contravened the anti-avoidance provisions contained within the FW Act:

• terminating the employee’s employment to avoid the restrictions on the new limits on fixed-term and maximum-term contracts;
• delay re-engaging an employee;
• not re-engaging an employee and instead engaging another person to perform the same, or substantially similar, work as the employee previously on a fixed-term or maximum-term contract had performed; or
• change the nature of the work or tasks the employee is required to perform.

Where employees and employers have a dispute about a fixed-term or maximum-term contract that cannot be resolved at the workplace level, the Fair Work Commission (FWC) can step in to resolve it 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.

The changes to fixed-term and maximum-term contracts only apply to new contracts commencing after 6 December 2023. However, any contract that was in place before this date will be counted towards the limits. For example, if an employer commences a new contract with an employee after 6 December 2023, the contract entered into before 6 December 2023 will count towards assessing if there have been more than two contracts that meet the limits described above.

Are there any exceptions?

Some exceptions do exist, and they permit the use of fixed-term contracts outside of the limits outlined above. These include, but aren’t limited to:

• performing a discrete task involving specialised skills;
• undertaking essential work during a peak demand period e.g., fruit picking, harvest work or other seasonal work;
• temporarily replacing an employee on leave e.g., workers compensation or parental leave;
• apprentices and trainees;
• the performance of work where government funding, or funding of a kind prescribed by the regulations, is payable for more than two years without any reasonable prospect the funding will be renewed after that period; (the funding must relate to the particular role the employee was engaged to perform under a fixed-term or maximum-term contract. For example, the funding will need to be specifically confined to the actual role the employee was engaged to perform, it will not be enough that an employer receives Government funding for a particular project and can appoint funding to different areas of the project as it sees fit. Instead, the funding received from the Government will need to specifically outline that it is funding for a particular role/task for an employer to be able to rely on this exception);
• governance positions that have a time limit under the governing rules of a corporation or association; or
• in the year the contract is entered into the employee’s earnings are above the high-income threshold (currently $167,500 per annum).

Employers will bear the burden of proving an exception exists if proceedings are commenced for a contravention of the laws.

When do the changes take effect?

The changes take effect from 6 December 2023.

What do businesses need to do to prepare?

With December fast approaching, businesses should:

• review the circumstances in which they use fixed-term and maximum-term contracts;
• identify if any exceptions exist and ensure there’s sufficient evidence of that exception;
• review fixed-term and maximum-term contract templates to ensure compliance;
• implement review and control mechanisms concerning the use of fixed-term and maximum-term contracts; and
• ensure the Fixed-Term Contract Information Statement is ready to be sent to all employees who will be engaged under a fixed-term or maximum-term employment contract from 6 December 2023.

Citation HR can help businesses navigate these changes with expert guidance and legally compliant contract templates.

About our author

Amanda Curatore is a qualified Senior Associate at Citation Legal and Citation HR. Amanda is highly experienced in providing workplace relations advice and assistance to clients in a wide range of matters including employment contracts, modern award interpretation, managing performance, bullying and harassment, terminations and managing risk