Are You Compliant with the Recent Changes to Fixed Term Contracts?

By Madaleine Ziegler, Workplace Relations Advisor  

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) (‘the Act’) received Royal Assent on 6 December 2022, and amended the Fair Work Act 2009 (Cth) (‘FW Act’).  

The amendment introduced significant changes to the use of fixed term contracts, and they came into effect on 6 December 2023.  

In addition, the Fair Work Amendment (Fixed Term Contracts) Regulations 2023 (Cth) (‘the Regulations’) amended the Fair Work Regulations 2009 (Cth) (‘FW Regulations’). The Regulations commenced at the same time as the amendments to the FW Act, and provide clarity on the sources of funding, outline further exceptions, and confirm the high-income threshold calculation method for particular employees.  

This article gives an overview of the changes, what they mean, and how employers can ensure they are compliant. A fixed term contract that is not compliant may result with penalties payable by the employer, while a finding ruled a fixed term employee is an ongoing permanent employee.  

While the legislation refers to fixed term contracts, these provisions apply to all contracts which contain a term that ends the employment after a certain period e.g. maximum term or outer limit contracts.  

It also includes, but is not limited to, contracts for: 

• A specified period of time; 
• A specified task; or  
• The duration of a specified season.  
  

Difference between fixed term and maximum term contracts

Both fixed term and maximum term contracts are employment agreements with an identifiable end date. Fixed term contracts do not provide the right for either party (employer or employee) to terminate before that date, whereas maximum term contracts do.   

Limitations  

Since 6 December 2023, new rules apply to fixed term contracts. These relate to the following:  

• Length of fixed term contracts (time limitations);  
• Extension or renewal of fixed term contracts (renewal limitations); and  
• Offering of new fixed term contracts that are substantially similar to previous contracts (consecutive contract limitations).  

These rules do not apply to casual employees.  

Time limitations

A fixed term contract cannot be for a period of more than two years (including any extensions or renewals).*  

For example, a bookkeeper is offered a fixed term contract that terminates after four years. This contract may be unlawful as it breaches the time limitation of two years.*

*Subject to any available exceptions 

Renewal limitations

Renewable contracts are those which specify a fixed duration (initial period) and can be renewed or extended for a further period.  

A fixed term contract cannot have an option to be renewed or extended:  

• So the total period (initial period plus any further period) is more than two years [see example A]; or  
• More than once (even if the total period is less than two years) [see example B].* 

Example A: Simon is employed under a fixed term contract that will terminate after 18 months. However, Simon’s contract contains an option for the initial period to be extended for a further nine months. This contract may be unlawful as it breaches the renewal limitation of two years.*  

Example B: Rebecca is employed under a six month fixed term contract that contains an option for the initial period to be extended twice by up to six months each time. This contract may be unlawful as it breaches the renewal limitation of one extension.*  

*Subject to any available exceptions 

Consecutive contract limitations  

Consecutive contracts are those where one contract ends and a new contract is entered into.  

In certain circumstances, more than two consecutive fixed term contracts for the same or similar work cannot be offered to an employee.  

An employer cannot engage an employee on a new fixed term contract if:  

• Their previous contract was also for a fixed term; and 
• Their previous contract and new contract are for the same or substantially similar work [see example C]; and 
• There is substantial continuity of the employment relationship between the previous contract and the new contract [see example D]; and  
• Any of the following apply:  
  • The previous contract contained an option to extend that was exercised;  
  • The total period of employment (previous contract plus new contract) is more than two years; 
  • The new contract contains an option for renewal or extension; or  
  • The previous contract replaced an older contract (the initial contract):  
    • That was for a fixed term; 
    • That was for the same or substantially similar work; and  
    • There was substantial continuity of the employment relationship. 

Example C: Baillie is engaged under a fixed term contract to perform administrative and clerical duties for a senior manager. After that contract terminates, Baillie is offered a new fixed term contract to perform administrative and clerical duties for a different senior manager under the same employer. As there has not been a significant change in the work Baillie is performing, it is likely that the similar work condition would be satisfied.  

Example D: Michael is a university lecturer engaged under a fixed term contract which finishes at the end of semester one. During semester one, Michael is offered another fixed term contract that starts at the beginning of semester two. Even though the consecutive contracts have a temporary break in between them, the employment relationship does not end and therefore, it is likely that the substantial continuity condition would be satisfied.  

Fixed Term Contract Information Statement (FTCIS) 

Under the FW Act, employers have an obligation to provide all employees entering into a fixed term contract (whether or not an exception applies) with a copy of the Fixed Term Contract Information Statement (FTCIS). 

This must be given to employees before, or as soon as practicable after, entering into the contract.  

The FTCIS:  

• Can be downloaded from the Fair Work Ombudsman’s website; and  
• Includes information about the: 
  • Limitations on fixed term contracts;  
  • Exceptions; and  
  • Dispute resolution procedure.  

Failure to provide the FTCIS may expose an employer to civil penalties. In addition to the FTCIS, a copy of the Fair Work Information Statement* must also be given to new fixed term contract employees. 

*This is a separate document that informs employees about their minimum workplace rights and entitlements.  

Prohibited contracts

If a fixed term contract (including any renewals or extensions) is unlawful i.e. it breaches the prohibition and no exceptions apply, only the ‘expiry mechanism’ or end date will be rendered void. The remainder of the contract will continue to be in effect. 

Practically, this means the employee will be considered an ongoing (non-fixed term) employee with access to all entitlements that a permanent employee holds, such as:  

• Notice of termination;  
• Redundancy pay; and  
• Protection against unfair dismissal.   

These will apply from the moment the agreement is entered into, and not at the intended contract expiry date.​ 

Exceptions  

There are nine exceptions to the limitations on fixed term contracts. In some situations, these may overlap with one another. The exceptions do not enable employers to enter into consecutive fixed term contracts. Instead, they allow for contracts that are longer than two years or contain more than one option for renewal (if genuinely necessary and appropriate).  

It is important to note these exceptions are limited, and may not assist in circumstances where employers have traditionally used fixed term contracts.  

The exceptions are as follows:  

• The employee is engaged under a contract:  
  • To perform only a distinct and identifiable task using specialised skills;  
  • In relation to a training arrangement;  
  • To undertake work during:  
    • A peak demand period;  
    • Emergency circumstances or a temporary absence of another employee; 
  • Where they earn above the high-income threshold;  
  • That is funded wholly or partially by government funding or funding as prescribed by the Regulations, for a period of more than two years, and there are no reasonable prospects that the funding will be renewed after that period;  
  • Which relates to a governance position that is time limited under the governing rules of a corporation or association;  
  • That is prescribed by the Regulations, for which an exception applies; or 
• A modern award which covers the employee includes a term or terms that permit the contract.  

Distinct and identifiable task using specialised skills

In the first instance, this exception may appear wide ranging because numerous employees could be described as performing a ‘distinct and identifiable task involving specialised skills’. However, employers must use caution when relying on this as:   

• There are no available examples at this stage; 
• Its interpretation will likely be contested in the courts; and 
• The term ‘only’ implies it may not be applicable to employees who perform such tasks among other general tasks.  

It is recommended employers seek specific advice before relying on this exception.  

Training arrangements

This exception covers employees who are engaged as part of a training arrangement e.g. trainees and apprentices. However, it is not applicable to employees who are simply completing internal training.  

Essential work during peak demand periods

This exception applies to employees who perform seasonal work such as fruit picking.

Emergency circumstances or temporary absences

This exception is concerned with positions that need to be temporarily filled because the usual occupant is on a period of leave e.g. parental leave, a sabbatical, long service leave, or a workers’ compensation absence.  

High-income threshold

The high-income threshold is currently $167,500 per annum (excluding superannuation), and is indexed each year on 1 July.  

For part-time employees, this amount is pro-rated.  

Where an employee starts a new contract during the year or works part-time hours, the exception still applies if the contract would have met the threshold, had the employee worked: 

• Full time hours, or 
• For the entirety of the year.  

To calculate this, employers will need to apply the formula prescribed by the Regulations.  

Government funded work

To use this exception, all three limbs must be satisfied, making it a high bar to meet. Employers who want to rely on this exception will bear the evidentiary burden of proving there are no reasonable prospects of funding renewal.  

Governance positions  

For example, this exception may apply to board directors of a company.  

Prescribed by regulations  

This exception allows the Minister to prescribe further exceptions by regulation e.g. to address industry or sector specific needs.  

Award provisions  

The majority of modern awards do not contain provisions that permit the use of fixed term contracts. 

Evidentiary burden  

If an employer relies on an exception, they will bear the evidentiary burden of proving it applies.  

In other words, employers will need to show evidence which suggests a reasonable possibility that the exception is relevant to the contract. Employers should not rely on exceptions without being confident about their eligibility, as this may lead to the contract being deemed as ongoing, and constitute a breach of the FW Act.  

It is advisable that employers gather all necessary evidence which demonstrates how they meet the criteria of the exception, in case a dispute arises.  

The Explanatory Memorandum notes it is best practice for employers to include in the terms of their contract:  

• Any exceptions that they rely on; and  
• The basis on which they believe the exception applies.  

Industry exceptions  

The Regulations delay the commencement of the fixed term contract limitations for particular industries until 1 July 2024. 

This includes employees within the following categories:  

• Organised sport; 
• High performance sport; 
• Live performance;  
• Higher education; and 
• Non-government funded – philanthropic entities.  

The above exceptions only apply to contracts that are entered into on or after 6 December 2023 and before 1 July 2024.  

Organised sport

This includes employees who are engaged to primarily perform work for/in an organised sport as:  

• An athlete;  
• A coach for an athlete;  
• A match official; or  
• A performance support professional for an athlete or for a match official.  

To use this exception, the person who entered into the contract with the employee needs to be:  

• A National Sporting Organisation (including those for people with a disability) recognised by the Australian Sports Commission;  
• The governing body for an organised sport in a State or a Territory (or if the governing bodies are split between metropolitan and non-metropolitan areas – the governing body for the non-metropolitan areas);  
• A body conducting a State or Territory level competition for an organised sport; or 
• A member of, or a person otherwise affiliated with, an Organisation or body referred to above. 

High performance sport  

This includes employees who are engaged to perform work that involves directly supporting the administration or organisation of an international event for a high performance (elite) sport, where the employer is either the international organising body or the Australian organising body for the international event.  

Live performance  

This includes employees who are covered by the Live Performance Award 2020 where the contract is not for a period of more than 12 months.  

Higher education  

This includes employees who are covered by either the Higher Education Industry – Academic Staff – Award 2020 or the Higher Education Industry – General Staff – Award 2020. 

Non-Government funded – Philanthropic entities  

The Regulations expand the funding sources permitted by the Act to include funding by philanthropic entities.  

This is defined as funding that is provided:  

• By a philanthropic entity registered under the Australian Charities and Notforprofits Commission Act 2012 (Cth); or  
• As a testamentary gift or contribution to a philanthropic entity for a charitable purpose [as per the Charities Act 2013 (Cth)] of the philanthropic entity.  

To use this exception, the person who entered into the funding arrangement with the employee cannot be an associated entity of the philanthropic entity.  

 Anti-Avoidance 

The FW Act includes various anti-avoidance mechanisms which relate to the limitations on fixed term contracts. These are broad and aimed at preventing employers from circumventing the operation of the provisions. If an employer has several reasons for taking action and among these is avoidance of the prohibition, they will be held liable. Where a dispute arises, an employer is required to prove that none of the reasons for making changes, in respect of a fixed term employee, were to avoid the prohibition.  

An employer must not:  

• Terminate an employee’s employment and then re-engage them for the same duties (i.e. to break the continuity of their employment);  
• Delay re-engaging an employee (i.e. to break the continuity of their employment); 
• Avoid re-engaging an employee and instead engage another person to perform the same or substantially similar work;  
• Change the work duties of an employee between two contracts (i.e. so they could not be said to be performing the same or similar work); or 
• Otherwise alter the employment relationship. 

Disputes  

Under these new provisions, the Fair Work Commission (FWC) is empowered to deal with disputes about fixed term contracts. Where a dispute arises between an employer and employee (‘the parties’), they must first attempt to resolve this by discussions at the workplace level. If a resolution cannot be achieved, either party can then refer the dispute to the FWC, who will deal with this as it considers appropriate. This may involve mediation, conciliation, making a recommendation, or expressing an opinion. If both parties agree, the FWC is able to conduct an arbitration, through which binding orders can be made. In addition, under the small claims procedure, eligible courts such as the Federal Circuit and Family Court of Australia and Magistrates Courts may deal with disputes.   

Penalties  

The FW Act introduces several new penalty provisions that carry significant consequences for non-compliance. Employers who breach the fixed term contract limitations or fail to provide employees with the FTCIS may be subject to civil penalties. For ordinary contraventions, the maximum penalty is 60 penalty units for an individual and 300 penalty units for a body corporate. For serious contraventions, the maximum penalty is 600 penalty units for an individual and 3,000 penalty units for a body corporate.  

Currently, the value of a Commonwealth penalty unit is $313.00 meaning:  

• 60 penalty units equates to $18,780 
• 300 penalty units equates to $93,900 
• 600 penalty units equates to $187,800 
• 3,000 penalty units equates to $939,000 

What does this mean for employers?  

Employers must take proactive steps to ensure they are compliant.  

If you have not already done so, you should:  

• Review and update your fixed term employment contract templates to ensure they do not contain any terms that are inconsistent with the new limitations e.g. a clause that permits multiple renewals;  
• Clearly document the reason/s for engaging an employee on a fixed term contract at the outset of their employment;  
• Monitor the duration of fixed term arrangements via the introduction of systems/procedures i.e. by creating a register of fixed term employment contract end dates;  
• Download the FTCIS from the Fair Work Ombudsman’s website, incorporate it into internal processes e.g. hiring and onboarding, and ensure it is provided to all fixed term employees on commencement;  
• Confirm whether your recruitment practices, such as the language used in job advertisements, comply with the prohibition; and  
• Develop contingency plans for fixed term contract expirations.  

How can we help?  

Fixed Term and Maximum Term Employment Contract Templates  

We have a suite of fixed and maximum term employment contract templates available for purchase.  These can be adopted and adapted for the workplace, with options for:  

• Full-time and part-time employees; 
• Salaried arrangements; 
• Employees that are:  
• Above award;  
• Award free; and  
• Award-based.  

Cost 

Business Chamber Queensland Members 

$154.00 (including GST) per template  

Non-Members 

$275.00 (including GST) per template 

Representation 

For the purposes of resolving a dispute, referring a dispute to the FWC, or engaging in the FWC’s dispute resolution process, employers can appoint a person or industrial organisation e.g. Business Chamber Queensland, to provide them with support or representation.  

Similarly, where none of the exceptions apply to a fixed term contract that an employer wants to enter into, and believes an exception should exist, Business Chamber Queensland can assist. This is because we may be able to make representations to the Minister (on your behalf) which encourages a certain exception to be prescribed in the Regulations that cover the contract.   

Business Chamber Queensland members with HR services as part of their membership are invited to contact the Workplace Advisory Services team on 1300 731 988  or email at [email protected]    

 Businesses who do not have a HR membership may also seek assistance however a competitive consultancy fee will apply for any advice and assistance provided.   

 For membership enquiries, please contact our membership team on 1300 731 988.