New changes coming to the use of fixed term contracts under the Fair Work Act
From 6 December 2023, new laws will be introduced under the Fair Work Act 2009 (Cth) (‘FW Act’) limiting the use of fixed-term contracts with an ‘identifiable end date’ of more than two years. Contracts which have an option to renew for a further term and the combined total of the contract exceeds two years will also be captured by the new restrictions.
This upcoming change is part of the government’s effort to minimise both insecure work and job insecurity.
What are the restrictions?
Unless subject to an exception, the FW Act will prevent employers and employees from entering into the following (non-casual) contracts:
- contracts with a termination date exceeding two years;
- contracts which can be renewed for a cumulative period of more than two years or renewed more than once; and
- consecutive contracts for substantially similar work, that would exceed two years in duration when totaled together.
Any of the above contracts will be precluded even if an option to terminate early is available (known as maximum or outer limit term contracts).
Exceptions which will apply to the new restrictions include:
- employees hired for a distinct and identifiable task requiring specialised skills;
- replacement employees providing cover during the temporary absence of another employee; and
- when the position is entirely or partially funded by government funding payable for a period of two or more years with no reasonable prospect of renewal.
Other exceptions apply on an individual basis, such as those earning above the high-income threshold, or more generally, such as when a contemporary award permits fixed-term contracts.
Possible implications for breaches
The Fair Work Commission will conciliate, and if necessary, arbitrate, disputes regarding the operation of the fixed term rules. Where a fixed term contract breaches the new restrictions, the employee will be considered a permanent employee and the employment contract will continue as if the fixed termination date has no effect – the remainder of the contract will otherwise be valid.
Further, employers can be liable to severe monetary penalties for breaches of the new prohibitions. Anti-avoidance rules will also be applicable, and employers can be penalised for taking measures to avoid the effect of the fixed term restrictions.
Who will this impact?
Fixed-term contracts which are entered into on or after 6 December 2023 will be affected by the upcoming restrictions. These contracts will need to factor in any previous fixed term contracts and include them towards the prescribed two-year limitation.
There have been several reforms to employment laws within the last year and if you are a business hiring employees on fixed term contracts, it is important to begin preparing now for the upcoming changes.
Disclaimer: This publication is intended for general and informative use only and is not to be relied upon as professional financial or legal advice.
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