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Fixed Term Contracts – Guide to the New Rules

Human Resources

Fixed Term Contracts – What you need to know about the new rules

The law was changed on 6 December 2023 to limit the ability of employers to engage employees on fixed term contracts.

This article explains the practical effects of the changes to help employers understand the new rules and limitations.

What is a fixed-term contract?

A fixed-term contract is when the employment terminates at the end of a set date or period of time as opposed to an ongoing employment arrangement. Typically, fixed term contracts are used for situations like maternity leave cover, seasonal and project work.

Fixed-term contracts are also widely used by organisations that receive external funding (e.g. Government grants) and can only commit to employing staff whilst the funding is in place.

Fixed term employees are entitled to the same wages, penalties and leave as permanent employees, with the key difference being that there isn’t an obligation for the organisation to provide work beyond the end date of the fixed term. Therefore, if their contract terminates at the end of the specified period, employees are not entitled to notice, redundancy pay and can’t access unfair dismissal claims.

What has changed?

Subject to a limited number of exceptions (explained further below) the new legislation introduced on 6 December 2023 means that employers cannot engage an employee in the same, or substantially similar, employment relationship:

  • On a fixed term contract for a period totalling more than 2 years (including extensions)
  • For more than two successive fixed-term contracts (i.e. can only renew once)

The new provisions make it an offence for an employer to enter into a contract that provides options to contradict the above limitations.  It is also an offence to take certain actions to purposely avoid these rules (anti-avoidance protections).

Employers are now required to provide the ‘Fixed Term Employment Information Statement’ to all employees entering into fixed-term contracts. The statement is published by the Fair Work Ombudsman and updated from time to time. Follow this link for the current statement.

Existing fixed term contracts

The length of service and/or previous contract renewals that occurred before 6 December 2023 will be taken into account when assessing whether the employee has been employed for at least two years or if their contract has previously been renewed.

For example: Steve is a current employee on a fixed term contract that started 1st July 2023 and is due to end on 30th June 2024. You are therefore able to extend his contract for one additional term and for the maximum period of one year, but not further.

However, if Steve already had his contract extended in the past, you would not be able to renew it for a further period as it has already been renewed previously.

What happens when a fixed term contract has reached its maximum allowable term/number of extensions?

If it is not possible to renew or extend a fixed term contract, then you will face the option of ending the employment at that point or continuing to employ the employee permanently.

It is important to understand that if a fixed term contract doesn’t comply with the new provisions, or if the termination does not occur at the set date, the contract will remain in effect except for the fixed term contract expiry clause. In addition to this, the employee would also be entitled to notice of termination, redundancy pay and have access to unfair dismissal proceedings.

What are the exceptions?

In some circumstances, the abovementioned limitations do not apply.

There are several limited exceptions including:

  • Employees who are engaged to perform a distinct and identifiable task involving specialised skills that the employer does not have.
  • Employees who are engaged by way of a training arrangement (e.g. apprenticeship)
  • Employees who earn more than the high-income threshold (currently $167,500 p.a.)
  • Employees who are engaged to undertake essential work during a peak demand period (e.g. seasonal harvesting)
  • Employees who are engaged to undertake work during emergency circumstances or during a temporary absence of another employee (e.g. extended maternity leave)
  • The contract relates to a governance position that has a time limit under the governing rules of a corporation or association (e.g. stipulates a 3-year term for a CEO)
  • The employment is funded by government or philanthropic entities or by testamentary gift or contribution, and the funding is for a period of more than two years and there are no reasonable prospects that the funding will be renewed after that period.

There are also further exceptions for sports, live performance and higher education employees.

Please refer to this link by  Fair Work to read the full details of the exceptions to the limitations.

NOTE: If an exemption is relied upon, businesses should consider seeking advice to ensure your specific circumstances are appropriate and in line with the guidance provided by Fair Work.

What should businesses do?

We recommend that employers:

  1. Review all current fixed term contracts and work out if the new rules will mean that when the contract expires, they will not be able to extend or renew the fixed term contract and;
  2. Carefully review any new fixed term contracts to ensure they are compliant with the new legislation and do not contain options to contradict the new provisions.

If your business uses fixed term contracts, and you are unsure whether your proposed terms are compliant, please contact us at Cairns HR Services for specific advice.