New Limitations On Fixed Term Employment Contracts – Employers need to know what they don’t know!
As of today (6 December 2023), there will be new rules that impact the use of fixed term employment contracts. These are the final changes to come into force as part of the Fair Work Legislation Amendment (Secure Jobs Better Pay) Act 2022, which passed on 2 December 2022.
The changes which commence today not only limit Employer’s use of fixed term contracts but may result in employees automatically converting to ongoing permanent employment.
CHANGES YOU SHOULD BE AWARE OF
The changes will:
- Limit the maximum duration of a fixed term contact to two years;
- Employers will be restricted from offering fixed term contracts with options to extend or renew them;
- Constrain employers from engaging an employee in a new fixed term contract;
- Provide robust restrictions preventing employers from circumventing these restrictions; and
- Require employers to provide employees on new fixed term contracts a ‘Fixed Term Contract Information Statement’.
Failure to comply may result in employees bringing a General Protections claim in the Fair Work Commission or employers being subject to civil remedy provisions.
Background
The current Federal Government has criticised the overuse of fixed term contracts as worsening job insecurity in occurrences where they include an expanded period or where the employment would otherwise be ongoing. A fixed term contract of employment specifies an end date to the employment. These types of contracts are desirable to employers as they are not obligated to adhere to certain protections usually afforded in contracts such as minimum notice for termination.
New limitations on the use of fixed term contracts
There are three new rules and all of them are required to be followed. These limitations relate to:
- how long a fixed term contract can be (time limitation)
- renewing a fixed term contract, including how many times a contract can be renewed (renewal limitations)
- employing a person on consecutive contracts (consecutive contract limitations).
Time limitations
The fixed term contract must not be for more than two years.
Renewal limitations
Following the above, the two-year limitation includes extensions to the contract.
The fixed term contract should also not be extended more than once.
Consecutive contract limitations
An employer cannot employ someone on a new fixed term contract if the contract is for mainly the same works as the previous fixed term contract and there isn’t a substantial break in the employment relationship between the previous and new contracts.
Exceptions to limitations
There are several exceptions to the new limitations set out above. These include but are not limited to training arrangements such as for apprenticeships, temporary absences like a contract covering sabbaticals, high-income employees and numerous more.
Fixed term contract limitations will not affect employee who are casual. But take note, the Federal
Breaching these new limitations
Should a breach of the fixed term limitation become apparent, the contract will still remain valid, but the clause which says the contract will terminate at the end of an identifiable period will no longer have effect. In other words, the employee’s employment could be deemed ongoing without an end date.
Anti-avoidance
Employers must exercise caution and ensure that they do not contravene anti-avoidance provisions to avoid the new restrictions. These include:
- terminating an employee’s employment;
- deferring the re-engagement of an employee;
- not re-engage an employee and instead engaging a new person to perform the same, or substantially the same, work; and
- changing the nature of the work or tasks required of the employee.
Fixed Term Contract Information Statement
Employers will be required to provide new fixed term contract employees with a Fixed Term Contract Information Statement. This should be provided before or as soon as practicable after the commencement of employment.
Conclusion
These new restrictions will come into effect from 6 December 2023. It is critical employers makes arrangement to review their contracts of employment as these limitations and exceptions are complex.
Tisher Liner FC Law can assist you. Please contact Amy La Verde for any queries.
