By: Sian Gilbert, Dexter Cabal and Atticus Saunders

At a glance

• From 6 December 2023, employers will no longer be able to use a fixed term contract that has a period longer than 2 years or extend the fixed term contract more than once.
• There are several exceptions that may apply; however, anti-avoidance provisions will limit the ability for employers to bypass these new restrictions.
• Where a fixed term contract is found to be prohibited, its end date will have no effect and the employment will be ongoing. In these circumstances, employers and insurers should be aware of the associated risks and the possible implications, including liability for additional entitlements and potential claims in the Fair Work Commission.

Background

Introduced in late 2022, the Federal Government’s Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (the Amendment Act) brought a raft of changes to the Fair Work Act 2009 (the FW Act) that marked a significant overhaul of Australia’s workplace relations system.

One of the final components of the Amendment Act comes into effect on 6 December 2023. It places significant restrictions on the use of fixed term contracts and introduces new rules for engaging employees in this way.

A fixed term employment contract includes a provision that ends the contract on a specific date. The Amendment Act also affects “maximum term” contracts, which include a specified term but can be terminated prior to this date with notice.

The Federal Government has been critical on the apparent overuse of fixed term contracts, and their rationale for these restrictions is based on improving job security and promoting gender equality.

New restrictions

From 6 December 2023, the new restrictions will apply to employees other than casuals, and will prohibit fixed term employment contracts in circumstances where:

• the period of the fixed term contract is greater than 2 years, including renewals and extensions
• the fixed term contract allows for an extension or renewal that would extend the contract’s term beyond 2 years, or the fixed term contract can be extended or renewed more than once, or
• the consecutive contracts criteria of the FW Act are satisfied; that is, where the employee performs the same or substantially similar work under two or more consecutive contracts, and there is substantial continuity of the employment relationship between these consecutive contracts.¹

There are exceptions to these new restrictions, and the prohibitions explained above will not affect a fixed term contract in circumstances where:

• the employee is engaged to perform a distinct and identifiable task involving specialised skills
• the employee is engaged for training purposes
• the employee is engaged for essential work during a period of peak demand
• the employee is engaged during emergency circumstances or during the temporary absence of another employee
• the employee earns above the high-income threshold during the year in which the fixed term contract was entered into
• the employment is in relation to a government funded contract
• the employment is in a governance position, or
• the employment is covered by a Modern Award that allows for certain fixed term contract options.²

In circumstances where a fixed term contract is in contravention of the provisions outlined above, the contract’s end date will have no effect, and the employment is considered ongoing.³

Employers will be restricted from any attempts to bypass these new restrictions with the inclusion of anti-avoidance provisions in the FW Act, including:

• terminating an employee’s employment for a period
• delaying the re-engagement of an employee for a period
• not re-engaging an employee and instead engaging another person to perform the same, or substantially similar work that the employee had previously performed
• changing the nature of the work or tasks the employee is required to perform, or
• otherwise altering an employment relationship.⁴ 

The FW Act will also provide for the publication of a new Fixed Term Contract Information Statement that employers will be required to provide to employees who are engaged on fixed term contracts from 6 December 2023 onwards.⁵

Implications for employers and their insurers

These changes to fixed term contracting arrangements creates a range of implications for employers and their insurers alike.

While the new restrictions outlined above apply to fixed term contracts made after 6 December 2023, existing fixed term contracts will still be relevant where, in tandem with a new fixed term contract, they meet the definition of consecutive contracts.

In the event that a fixed term contract is found to be prohibited, and that employment relationship is effectively ongoing, employers and their insurers must be wary that the employee on that contract may have access to:

• notice of termination payments
• redundancy payments, and/or
• the unfair dismissal jurisdiction.

Moreover, employers and their insurers should be on notice that the general protections provisions of the FW Act apply to the changes brought about by the Amendment Act, and an employee (including those on a fixed term contract) could bring a claim in circumstances where an employer takes adverse action against the employee for exercising a workplace right in respect of fixed term contract limitations.

Employers and insurers should also note the civil penalties associated with the new restrictions, including providing an employee with a prohibited fixed term contract or failing to provide the Fixed Term Contract Information Statement. Furthermore, where an employer is relying on an exception as outlined above in proceedings for a civil penalty order for using a prohibited fixed term contract, the evidentiary burden to prove the exception resides with the employer.

In circumstances where a dispute about a fixed term contract between an employee and an employer cannot be resolved in the workplace, insurers should be aware that an application can be made to the Fair Work Commission to resolve the dispute by conciliation, mediation or consent arbitration. In addition to this, proceedings can be brought in the Federal Circuit and Family Court of Australia to deal with a fixed term contract dispute under the small claims procedure.

^[1] Fair Work Act 2009 s333E (from 6 December 2023).

^[2] Ibid. s333F (from 6 December 2023).

^[3] Ibid. s333G (from 6 December 2023).

^[4] Ibid. s333H (from 6 December 2023).

^[5] Ibid. s333J and s333K (from 6 December 2023).