Understanding the differences between fixed-term and upper-limit employment contracts in Australia is essential for employers. Misclassifying contract types can lead to legal exposure, including unfair dismissal claims, redundancy entitlements, and penalties under the Fair Work Act 2009 (Cth).
In this article, our workplace lawyers, explain how these contract types work, how recent reforms affect their use, and what steps employers must take to remain compliant.
Key Takeaways
Fixed-term contracts must end automatically at a specific date or event and must not include termination on notice.
Upper-limit (or maximum-term) contracts include an end date but allow early termination via notice – and trigger unfair dismissal protections.
As of 6 December 2023, new laws limit fixed-term contracts to two years and one renewal, with exceptions.
Employers must provide a Fixed Term Contract Information Statement (FTCIS) with each contract.
Failure to comply can result in contracts being treated as ongoing, with full employee entitlements.
2023 Legal Reforms: What’s Changed?
Effective 6 December 2023, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 introduced tighter restrictions:
Maximum duration: 2 years (including any extensions)
Limit on renewals: Only one renewal is allowed
FTCIS requirement: Must be issued with each contract
Non-compliance may lead to the contract being deemed “ongoing”, triggering redundancy and dismissal obligations.
For a deeper explanation of the recent legislative changes, including timelines and exceptions, read our full guide on the new rules for fixed-term employment contracts.
What is a Fixed Term Employment Contract?
A fixed-term contract is an employment agreement that ends automatically at a set date or when a specific project or task is completed. These contracts are often used for roles like maternity leave cover or short-term projects.
To be a genuine fixed-term contract:
The start and end date must be clearly defined.
There must be no clause allowing termination with notice.
The intention must be that the employment ends at the end date, with no expectation of renewal.
If a fixed-term contract includes a termination on notice clause, it may be deemed an upper-limit contract instead, which can trigger legal risks such as unfair dismissal claims.
What is an Upper-Limit (Maximum-Term) Contract?
An upper-limit contract (also called a maximum-term or outer-limit contract) sets a final employment date but allows either party to terminate early by giving notice. These contracts offer greater flexibility and are often used when:
Business needs are unpredictable
The project scope may change
Early exits need to be possible for performance reasons
Key characteristics:
May include one or more renewal options
Termination on notice is lawful
Unfair dismissal protections apply if the employee is terminated early
Terminating an upper-limit contract early without following due process may lead to legal claims – learn how to defend an unfair dismissal claim as an employer.
Exceptions to the Fixed-Term Contract Limitations
Certain contracts are exempt from the 2-year and one-renewal limit. Employers must ensure the exception is genuine and supported by documentation.
| Exception | Example/Description |
|---|---|
| High-income earners | Employees earning over $167,500 p.a. (as indexed) |
| Government-funded roles | Contracts tied to funding periods longer than 2 years (e.g. university grants) |
| Seasonal or emergency work | Short-term needs like disaster recovery or peak periods |
| Training agreements | Formal apprenticeships or registered traineeships |
| Specialised projects | Time-limited infrastructure or R&D projects exceeding two years |
Terminating Fixed-Term vs Upper-Limit Contracts
The process for ending each type of contract is legally distinct.
A fixed-term contract is designed to conclude automatically on the end date. It does not require a notice period to end and cannot be terminated early unless both parties agree, or unless one party commits serious misconduct. Including a termination-on-notice clause risks invalidating the contract’s fixed nature – a mistake that could expose the employer to unfair dismissal claims.
In contrast, an upper-limit contract allows either party to terminate the agreement early, provided they give proper notice. Because this flexibility resembles ongoing employment more closely, employees are entitled to procedural fairness. Employers must have a valid reason for termination, follow a fair process, and comply with minimum notice periods. Otherwise, the dismissal could be ruled unlawful.
Employers navigating contract types and termination risks should be familiar with their obligations under the Fair Work Act – read our employer’s guide here.
Best Practices for Employers
1. Use precise language: Clearly define contract type, duration, and termination rights
2. Don’t mix terms: A fixed-term contract must not allow early termination unless for serious misconduct
3. Provide the FTCIS: Legally required for all fixed-term agreements
4. Assess risk vs flexibility: If you need flexibility, an upper-limit contract may be more suitable, but comes with dismissal obligations
5. Keep clear records: Document renewals and communications with employees to avoid misclassification claims
6. Seek legal advice: Especially if the role may exceed two years or needs to be terminated early
Whether drafting a fixed or maximum-term agreement, it’s important to know what clauses should always appear in an employment contract to ensure clarity and enforceability.
Case Study: Andersen v Umbakumba Community Council (1994)
In this case, a worker was employed under a series of short-term contracts that included early termination clauses. Despite the contracts appearing fixed-term, the court found they were actually upper-limit contracts due to the notice provision.
Key Lessons:
Substance over form: Courts look at the real nature of the relationship, not just the wording
Repeated renewals suggest ongoing employment
Contracts with notice clauses do not meet the legal definition of a fixed-term agreement
As a result, the employee was able to pursue an unfair dismissal claim, even though each contract had an end date.
Frequently Asked Questions
Can I terminate a fixed-term contract early if I include a notice clause?
No. Including a termination on notice clause in a fixed-term contract undermines its fixed nature and may cause it to be classified as a maximum-term contract. Under the new Fair Work Act provisions, genuine fixed-term contracts must not allow early termination unless there is serious misconduct or mutual agreement between the parties.
What happens if I forget to provide the Fixed Term Contract Information Statement (FTCIS)?
Failure to provide the FTCIS at the start of a fixed-term contract is a breach of the Fair Work Act 2009 (Cth). This may result in the contract being treated as ongoing employment, giving the employee access to entitlements such as unfair dismissal protection and redundancy pay. It may also expose the business to regulatory penalties.
What’s the safest contract type if I need flexibility beyond two years?
If you require employment arrangements that may exceed two years or need flexibility to end early, a maximum-term (outer-limit) contract may be more appropriate. However, these contracts are subject to unfair dismissal protections if terminated early, so you must follow fair process. Legal advice is essential to ensure the structure aligns with your business needs and risk profile.
What happens if a fixed-term or upper-limit contract is silent on renewal or extension?
If a contract does not specify whether it may be renewed or extended, and the employee continues working past the expiry date without a new written agreement, the employment may be deemed ongoing. This can expose the employer to obligations such as redundancy pay, notice of termination, and unfair dismissal protections under Australia law.
Can an employer use different titles or job descriptions to avoid fixed-term contract restrictions?
No. Attempting to circumvent fixed-term contract restrictions by changing job titles or descriptions, while the substantive role and duties remain the same, is not effective under Australia law. The Fair Work Commission will look at the substance of the role, not the title.
If you need to modify the terms of an existing employment contract, it’s essential to understand how to vary an employment contract under Australian law to avoid unintended breaches.
