Employer Update - Fixed Term Contracts

New rules governing fixed-term contracts will take effect on 6 December 2023. These rules restrict the use of fixed-term contracts, with some exceptions to allow for legitimate commercial arrangements.

IMMEDIATE ACTION REQUIRED – If you currently have employees working under a fixed term contract you should review the changes below.

FREQUENTLY ASKED QUESTIONS

What is a fixed term contract?
Fixed-term (or maximum term) contract employees are hired for a specific period of time, such as 12 months, after which their employment ends, unless the parties agree to a further fixed term period.

Fixed-term contract employees are typically full-time or part-time employees and are usually entitled to the same wages and leave as permanent employees.

What are these new rules?
The new fixed term rules are:

Time Limitation - A fixed-term or maximum-term contract cannot exceed two years.

Renewals and Extensions - Any offer or agreement to extend or renew a fixed-term or maximum-term contract cannot result in an employment period longer than two years and can only be made once.

Consecutive Contracts - If the new fixed-term contract is a continuation of the same work as a previous fixed-term contract, and there is not a substantial break in employment between the two contracts, then the total employment period cannot exceed two years. This includes cases where the new fixed-term contract includes an option to renew or extend the contract, or where the previous fixed-term contract was extended.

Example 1: 
Jane is employed on a fixed-term contract for 12 months. Her employer extends the contract for another 6 months when her initial contract ends.
At the end of the additional 6 months, Jane’s employer offers her another extension of 6 months.
This contract breaches the limitations because a fixed-term contract can’t be extended more than once, even if the total period is less than 2 years.

Example 2:
Sam is employed on a fixed-term contract for 12 months. His employer extends the contract for another 12 months when his initial contract ends. At the end of the total 24 months, Sam’s employer offers him a further 12-month contract for the same position.
This contract breaches the limitations because a fixed term contract the new fixed term contract is for the same position and the employment period exceeds 2 years.

What are the Exceptions to the new rules?
There are a number of exceptions that apply:

• The employee has specialised skills that the employer needs to complete a specific task.

• The employee is hired as part of a training program (e.g., apprenticeship or traineeships).

• The employer needs additional staff for essential work during a peak demand period, during an emergency or to temporarily replace a permanent employee who is absent for personal or other reasons.

• The employee earns over the high-income threshold ($167,500 as of the date of publication of this article) for the first year of the contract.

• The employer relies on government funded contracts to directly finance the employee's position and there is no reasonable prospect of the funding being renewed.

• The employee is appointed under the governance rules of a corporation or other association and those rules specify a length of time for the appointment (such as a four-year term of office).

• Under an applicable modern award, the employer is permitted to engage an employee under a fixed-term contract that permits different fixed term contract options.

What is a Fixed Term Contract Information Statement?
Starting 6 December 2023, new fixed-term contract employees must be provided with both the Fair Work Information Statement (FWIS) and the Fixed Term Contract Information Statement (FTCIS) before or as soon as possible after they start employment on a new fixed-term contract. 

The FTCIS is currently being drafted by the Fair Work Ombudsman and should be available by 6 December 2023. Workplace Partners will endeavour to notify all our clients and provide a copy as soon as it is published.

What are the consequences for breaching the new rules?
If a fixed-term contract is made in breach of the new rules, the employee will be considered a permanent employee. This means that the employee's contract will be treated as an ongoing contract, and the employer will have to follow the usual termination and redundancy rules under the award and the Fair Work Act 2009.

The employee will also gain access to unfair dismissal proceedings.

What are the next steps for employers?

Immediate - Review and assess whether any exceptions apply that would allow you to continue using fixed-term contracts, or whether you need to transition to other employment arrangements sooner rather than later.

Long Term -  The decision to employ future employees on fixed term contracts will need to be carefully considered against the terms of the relevant modern award (as well as any applicable exceptions) and tailored to your business needs.

Information provided courtesy of Workplace Partners.