Fixed-Term Contracts: What You Need to Know

The following should not be considered legal advice and is for general use only.

On 2 December 2022, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 was passed by the Federal Parliament, bringing significant changes to the federal employment law system.  

These changes, effective from 6 December 2023, cover a wide range of legislative provisions.  

When it comes to fixed-term contracts, it is crucial for both employers and employees to understand these specific amendments to ensure compliance and protection of their workplace rights. In this article, we outline the key aspects of the changes and provide guidance on how to navigate them.  

Restrictions on Fixed-Term Contracts 

The use of fixed-term contracts will be now limited to a maximum duration of two years. There are exceptions to this rule, including apprenticeships, traineeships, seasonal work, and contracts where the employee’s earnings exceed the high-income threshold (currently $167,500 p.a.).  

It’s important to note that even though the legislative changes don’t come into effect until 6 December 2023, existing fixed-term contracts made before this date will be counted towards the new limit.  

Any breach of these provisions will result in the automatic conversion of the employee to a permanent status, with all contract terms continuing to apply except for the expiry date. 

Anti-Avoidance Provisions 

The amendments also include comprehensive anti-avoidance provisions to prevent employers from taking actions that circumvent the restrictions on fixed-term contracts. Prohibited actions include altering contract terms, delaying re-engagement, changing job duties, and more.  

Employers contravening these provisions may face civil liability and penalties which can be $16,500 (60 penalty units) or for a serious contravention $165,000 (600 penalty units).  

Enforcement and Dispute Resolution 

Disputes regarding fixed-term contracts can now be referred to the Fair Work Commission and it will have the ability to attempt to resolve disputes through mediation, conciliation, recommendations, or arbitration if both parties agree.  

In such a scenario, employers should be prepared to provide evidence to demonstrate that their decisions were not made to avoid the prohibition on fixed-term contracts. 

For more information on the amendments, the Fair Work Commission has prepared an information page on all the amendments that comprise the Secure Jobs, Better Pay Act. 

Why Were These Changes Made?  

Fixed-term contracts, by their nature, provide employment for a predetermined period, often without the same level of stability and job security as permanent positions. The overuse and misuse of fixed-term contracts have created uncertainties for employees, leading to concerns about their long-term financial stability and career progression. This change is designed to prevent employers from continuously utilising fixed-term contracts to circumvent offering permanent employment to individuals performing ongoing roles. By restricting the use of fixed-term contracts, the changes aim to address the job insecurity faced by employees who may have been trapped in a cycle of short-term employment arrangements and non-permanent employment. 

Given women are overrepresented in casual work (54.6 per cent) and make up nearly 60 per cent of workers on fixed-term contracts, these changes are expected to greatly improve gender equity outcomes.  

Employer Obligations 

To ensure compliance, employers should take the following steps: 

1. Review HR processes: Assess current processes to monitor the duration of new fixed-term contracts, renewals, and consecutive contracts, ensuring they do not exceed the two-year limit (with exceptions).
2. Review employment contract templates: Seek legal advice to review and update existing fixed-term employment contract templates as required.
3. Assess existing arrangements: Determine if current fixed-term arrangements fall under the new provisions and if any exceptions apply.
4. Prevent contract extensions: Implement mechanisms to avoid renewals or consecutive contracts after 6 December 2023 that would exceed the two-year limit for fixed-term employment.
5. Provide Fixed Term Contract Information Statement: Starting from 6 December 2023, issue a Fixed Term Contract Information Statement to all new employees engaged on fixed-term contracts.

As employment law specialists, we can help you review your existing fixed-term contracts, design new employment contracts, and advise you on the most appropriate steps to take before the legislative changes come into effect.  

If you have questions or concerns, DKL is here to help. 

The above should not be considered legal advice and is for general use only.