Fixed Term Contract Changes: What you need to know!

From today, 6 December 2023, Employers will be bound by new limitations on fixed term contracts under the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (‘Secure Jobs, Better Pay Act’). The intent of the new legislation is to protect employees from being engaged on rolling fixed term contracts in the same position.

This article breaks down what these changes mean for Employers.

The new rules apply to contracts entered into or renewed after 6 December 2023 and prohibit Employers from offering fixed term contracts if:

• The contract operates for a period greater than two years;
• The contract can be extended for a period greater than two years; or
• The contract provides an option for the Employer to extend or renew the contract more than once and:
  • The previous contract was for the employee to perform the same, or substantially similar work; and
  • There is substantial continuity of the employment relationship between the termination of the previous contract and the commencement of the new contract; and
  • Either:
    • The previous contract and new contract will operate for more than two years;
    • The new contract contains an option for renewal or extension; or
    • The employee has previously been engaged under two consecutive fixed term contracts (not necessarily in excess of two years in duration).

The above limitations will not apply to certain contracts under the Secure Jobs, Better Pay Act. These exceptions broadly include:

• Contracts to perform a distinct and identifiable task involving specialised skills;
• Apprenticeships or traineeships;
• Essential work during a peak period (e.g. fruit picking or other seasonal work);
• Work during emergency circumstances or during a temporary absence of another employee (e.g. additional staff is needed to replace a permanent employee who is absent for personal or other reasons, parental leave, sabbatical, long service leave or an absence relating to workers’ compensation);
• If an employee earns above the high income threshold (currently $162,000);
• Eligible positions linked to Government funding.

If an Employer seeks to rely on one of the above exceptions when engaging a fixed term employee, it is recommended that this is clearly articulated in the contract.

While successive contracts for distinct and separate roles are permitted, the new legislation requires Employers to be mindful of the employee‘s continuity of service.

Short breaks between contracts will not break continuity for assessing an employee’s period of employment under these provisions, such as when teachers finish at the end of one semester and start at the beginning of the next semester.

To prevent Employers from artificially altering the employment relationship to bypass the limitations, the Secure Jobs, Better Pay Act has an anti-avoidance provision. Employers must not deliberately avoid the fixed term contract limitations by entering into a new contract that seeks to exploit loopholes or create unnecessary changes in the employment relationship. This could include, but is not limited to, terminating an employee or delaying their reengagement to break continuity of service or engaging another person on a fixed term contract to perform the same, or substantially similar work.

In the event that an Employer engages in anti-avoidance behaviours, an employee would have the ability to make a general protections claim on the basis that the Employer took adverse action against them because of their workplace rights.

A new requirement mandates that each fixed term employee must receive the Fixed Term Contract Information Statement (‘FTCIS’) from the Fair Work Ombudsman’s website before, or as soon as practicable after, the employment contract is entered into.

With these new limitations, Employers must take immediate steps to ensure compliance with the updated legislative requirements. Employers should:

1. Conduct an audit of existing fixed term contracts to identify those that may be affected by the new limitations or may be subject to an exception upon renewal.
2. Revise the provisions of fixed term contracts for compliance with the new legislation when new contracts are entered into.
3. When any current fixed term employees are converted to permanency, provide them with a new permanent contract of employment.
4. Incorporate the Fixed Term Contract Information Statement into the onboarding process to ensure that employees are aware of their rights.

The new limitations on fixed term contracts under the Secure Jobs, Better Pay Act mark a significant change in Australia’s employment landscape. Compliance with the new legislation should be prioritised by Employers as civil penalties may apply for non-compliance, with the Fair Work Commission now also having jurisdiction to resolve disputes in relation to fixed term contracts.

Our team of highly qualified consultants can provide customised advice to ensure any potential risks associated with non-compliance are adequately addressed.

Contact us today to see how we can support you and your organisation!