From 6 December 2023, the use of fixed term contracts will be significantly limited. This change is part of the Secure Jobs, Better Pay amendments to the Fair Work Act 2009 (Cth).
In a nutshell…
If you engage fixed term contractors in your organisation, particularly in circumstances where the term of the contact is for more than two years, you will need to consider whether it is necessary to engage them on an ongoing basis (full time or part time).
Subject to certain limited exceptions, employers will be unable to offer fixed term contracts where:
- The duration of the contract is more than two years;
- The contract can be renewed so that the employee is employed for more than two years (e.g. the initial contract is for 18 months and there is an option to renew for another 18 months)
- The contract can be renewed more than once; or
- Consecutive contracts are issued to the employee for the same or similar work where there is substantial continuity of employment and any of the following apply:
- The total period of employment for the consecutive contracts is more than 2 years;
- The current contract contains an option to extend or renew;
- A previous contract contained an option to extend or renew, which was exercised;
- There is more than one previous contract, with the preceding contract terminating at the end of a period for the same or substantially similar work, and there is substantial continuity.
You must also provide current and future employees who are offered a fixed term contract with the Fixed Term Contract Information Statement. This will be prepared by the Fair Work Ombudsman and has not yet been released. This must be given before the contract is entered into, or soon afterwards.
What does this mean in practice?
Here are some examples of how these changes will apply:
Unlawful: An employer hires an employee for 6 months, and the employment contract has the option to renew the contract twice more, even though the entire period would be for less than 2 years.
Lawful: An ployer hires an employee for 6 months and the contract provides the option to renew it only once more for a period of 6 months.
Lawful: An employer hires an employee on one fixed-term contract for two years to do Project A. The employer hires the same employee on another fixed-term contract to do completely different work.
What are the exceptions?
An employer can engage an employee on a fixed term contract outside the above limitations in circumstances where the employee is engaged:
- to complete a distinct and identifiable task that involves specialised skills.
- to be trained only (e.g. a trainee or apprentice);
- to undertake essential work during a peak demand period. For instance, fruit picking or other seasonal work is covered by this exception;
- in an emergency or temporary absence of another employee. This exception applies if another employee is on a period of leave and there is a shortage of staff;
- to perform work that is funded in whole or in part by government funding, where the funding is payable for over 2 years and there is no reasonable prospect the funding will be renewed.
- and paid above the high-income threshold during the year in which the employment contract was made; or
- in a governance position that has a time limit under the governing rules of a corporation or association of persons.
The terms of any applicable Modern Award may also allow for fixed term contracts that are outside the abovementioned restrictions.
The onus is on the employer to establish these circumstances exist if it seeks to rely upon an exemption.
What are the consequences of breaching the new provisions?
If you hire an employee contrary to the restrictions and none of the exceptions apply, the end date of the contract will have no effect and the employment will continue. This means that you will continue to be bound by the contractual terms and employee entitlements. You may also be subject to civil penalties.
Employers will be prohibited from taking measures to avoid these changes, such as delaying re-engaging an employee to avoid continuity of employment, engaging someone else in their place, or otherwise altering the employment relationship. Employers who take such steps may be in breach of the general protections provisions of the Fair Work Act 2009.
What should I do before 6 December 2023?
To prepare for these changes, employers should:
- Conduct an audit of their contract framework;
- Consider whether any exceptions apply;
- Consider whether any existing employees need to be offered ongoing employment;
- Review and update contract templates;
- Check and continue to monitor the high-income threshold;
- Monitor any relevant modern awards for changes; and
- Review employment records to determine whether any employees have had their contracts renewed.
What if I need to renew the contract more than once for the same work?
This will be unlawful unless an exception applies, and the employee will need to be engaged on an ongoing basis.
What if I require a replacement staff member for parental-leave cover?
It an employee is engaged to undertake work during a temporary absence of another employee, such as for parental leave cover, the above restrictions do not apply.
If you require advice about fixed term contracts, and how you may be affected by the changes, Justitia can help. Please contact firstname.lastname@example.org for more information.