Changes to fixed term contracts from 6 Dec 2023

What is a fixed-term contract?

The term “fixed term” covers all forms of contracts of employment which provide for a limited period of time, either by providing a specific end date, or providing for the contract to end on the occurrence of a specific event. To be considered a fixed-term contract for the purposes of the new provisions of the Fair Work Act, all that is required is that the contract provides in some way for an identifiable period, even if that period is only identifiable at the conclusion of the period. For example, the end of a project or other event. The term “fixed term” has fallen out of favour for employment contracts and terms such as maximum term or limited term have become more common. However, for the purposes of the new provisions of the Fair Work Act, 2009 “fixed term” refers to all employment contracts which are not ongoing contracts.

 What’s changing? 

On 6 December 2023, new restrictions on the use of fixed-term contracts will commence.

From 6 December 2023, employers can no longer engage an employee on a fixed-term contract where any of the following apply:

• the contract is for greater than two years; or
• the contract is renewable either for a period greater than two years or can be extended or renewed more than once; or
• the prescribed “consecutive contracts” criteria are satisfied (e.g. the work to be performed across these contracts is the same or substantially similar, and there is substantial continuity of the employment relationship between these contracts).

These restrictions will limit the period of fixed-term contracts to a maximum of two years (including renewals and extensions), subject to some limited exceptions.

 Limited exceptions

There are limited exceptions to the above requirements.  The exceptions that are available, include:

• Where an employee is engaged to perform only a distinct and identifiable task involving specialised skills;
• Where an employee is engaged to undertake essential work during a peak demand period;
• Where an employee is engaged to undertake work during emergency circumstances or during a temporary absence of another employee;
• Where an employee is engaged under a training arrangement;
• In the year the contract is entered into the employee is earning more than the high-income threshold for that year;
• Where a modern award permits the terms of a fixed-term contracts inconsistent with the above limitations;
• Where the contract relates to a governance position that has a time limit under the governing rules of a corporation or association of persons; and
• The contract relates to a position for the performance of work that:
  • Is funded in whole or in part by government funding; and
  • The funding is for a period of more than 2 years; and
  • There are no reasonable prospects that the funding will be renewed after the end of that period.

Penalty for getting it wrong

The maximum penalty for organisations contravening these provisions is $82,500, therefore employers should be careful to ensure that they are not in breach of the new provisions. If a contract fails to comply with the provisions, only the provisions pertaining to the contract’s end date will be invalid and unenforceable. The other terms of the contract will continue to apply. This means that an employer may find that they have a permanent employee in circumstances where they did not intend for this to occur.

Implications for employers

Employers will be required on 6 December 2023, to provide all existing employees on a fixed term contract a Fixed Term Contract Information Statement. All employees engaged on a fixed-term contract on or after 6 December 2023 will also need to be provided with the Fixed Term Contract Information Statement.

Employers should also take the opportunity as 6 December 2023 approaches to review existing employment contract templates to ensure they are consistent with the new requirements.

For more information and guidance about these upcoming changes, contact one of our HR consultants directly, or email at mazarshr@mazars.com.au

Published: 27/10/2023

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