The rules for fixed-term employment contracts were updated from 6 December 2023.
These regulations set limits on the maximum duration of employment and options for extension. The changes also apply to consecutive contracts to protect the rights and benefits of employees on fixed term contracts.
In this article, our employment lawyers explore these new regulations on fixed-term employment contracts. We also explain the restrictions and exceptions to the new fixed term contract rule and the potential impact on employers who do not comply with these new rules.
A fixed-term employment contract is a type of employment agreement that is set for a specific period of time. It has a definite start and end date, and is often used for specific projects or tasks, seasonal work, or to cover for another employee’s leave.
These contracts are governed by the Fair Work Act 2009 (Cth) (FW Act) and must comply with standards set out in modern awards or enterprise agreements.
Employment under a fixed-term contract is made for a specific period (e.g., 12 months) or for the duration of a specific project. On the other hand, permanent employment is not limited to a specific duration or period.
A fixed-term employment contract states when the term of employment will end. A permanent employment contract does not.
Generally, permanent employees have a right to receive notice of termination and may qualify for redundancy pay. However, employees on fixed-term contracts do not have such entitlements if their employment concludes at the expiration of the agreed term.
Employees on fixed-term contracts usually lack eligibility for unfair dismissal claims if their employment ceases at the end of the specified term. On the other hand, permanent employees can pursue claims for unfair dismissal after completing six months of service (or twelve months in the case of employees working for a small business).
Learn more about important clauses to include in your template employment contracts or the difference in fixed term and upper limit employment contracts in our articles.
The changes in the rules on fixed-term employment contracts primarily cover time limitations, renewal limitations, and consecutive contract limitations.
In practice, these limitations mean that after 2 years or 2 consecutive fixed term contracts, if an employer intends to re-engage the same employee, any further offers of employment must be permanent and ongoing.
These new rules are discussed in more detail below:
The fixed term contract cannot be for a period longer than 2 years, including any extensions or renewals.
This means that a fixed-term employment contract must not exceed a period of two years in total. Otherwise, an employer will breach the new rules for fixed-term contracts.
An example would be:
“ABC Pty Ltd employed Mike as a marketing specialist for their company for a fixed period of 2 years and 1 month.”
This is not allowed since the fixed period of employment exceeds the maximum allowable period of 2 years under the new laws.
A fixed-term employment contract cannot include the option to extend or renew the contract for a period longer than the maximum 2 year time limit.
An example would be:
“Cleanext Pty Ltd employed Sarah as master cleaner for a fixed period of 2 years, and the contract included an optional extension of another fixed term period of 12 months.”
This is not allowed since the fixed period of employment under the contract could exceed the allowable maximum period of 2 years.
Further, fixed term contracts must not be extended or renewed more than once.
An example would be:
“DCNG Studio Pty Ltd employed Greg as a dance instructor for a fixed period of 12 months. Before the expiration of Greg’s 12 month period of employment, DCNG Studio extended his employment for a further 6 months (a total of 18 months). A second extension of 6 months was then granted to Greg 3 days before the already extended 6-month period will end. ”
Greg’s contract would breach the renewal limits because a fixed term contract can’t have an option or right to extend more than once, even if the total period is less than 2 years.
An employee is not allowed to enter into a subsequent fixed-term contract if the following are present:
provided, however, that at least one of the following situations is also present:
An example would be:
“MaxG Pty Ltd a construction firm, employed Kira as a construction engineer under a fixed-term agreement covering the period from 1 January 2022 to 31 December 2022, renewable for a further 12 month period. Before the contract expires, MaxG extended Kira’s employment until 31 December 2023. On January 2024, Keri entered into another fixed-term agreement for an additional year, retaining the same role.”
This is not allowed for the following reasons:
There are exceptions to the new rules and limitations. Limitations on fixed-term employment contracts do not apply to the following type of employment:
A Fixed Term Contract Information Statement (FTCIS) is a document that employers must provide to every employee who is engaged on a new fixed-term contract. This statement provides employees with information about fixed-term employment, including the rules about when and how fixed-term contracts can be made.
The FTCIS includes:
Under the changes, employers must now provide their fixed-term employees the latest version of FTCIS when the employer enters into a fixed-term contract with the employee. This must be done either in person, by mail to their residential address, or electronically (such as by email or through the employer’s internet).
Further, under the changes, employers must give every new employee a copy of the Fair Work Information Statement (FWIS) before, or as soon as possible after, they start their new job. This provides new employees with information about their rights and conditions of employment. For example:
For more information see Fair Work Information Statement.
wmpc-trash is not registered, so it may not be reliable to check the capability edit_post against a post of that type. Please see Debugging in WordPress for more information. (This message was added in version 4.4.0.) in /home/prosperl/public_html/wp-includes/functions.php on line 6085
If a fixed-term contract fails to comply with the specified limitations, the termination date of the contract may become invalid. As a result, the contract will not automatically terminate upon reaching the original end date, rather it will expire at the statutory limit of two years (or on an earlier agreed date).
All other terms and conditions of employment stipulated in the contract remain in effect, including any entitlements that arise from applicable laws, awards, agreements, or the employment contract itself.
This could mean that an employer could find themselves with a permanent employee even though they intended the employment relationship to be for a defined period.
The employee will then have access to unfair dismissal remedies and redundancy pay, as well as other rights belonging to permanent employees.
Learn about more ways an employment contract can be invalid in our article.
Additionally, the Fair Work has implemented ‘anti-avoidance protections’ to ensure that employers can’t take certain actions to purposely avoid these new rules.
Avoiding these rules can include:
If an employer does any of these things, it may also be adverse action.
Fixed-term employees aren’t the same as independent contractors.
Independent contractors provide services to another person or business. They aren’t employed by that person or business. They usually negotiate their own fees and working arrangements and can work for more than one client at a time. An independent contractor has control over how work is performed, financial responsibility and risk, who supplies the tools and equipment, ability to delegate or subcontract work, hours of work, and expectation of work continuing.
Fixed term employees on the other hand are employees employed only for a fixed period of time.
These changes and limitations take affect from 6 December, 2023.
Yes, the exception also applies to an employee who is funded by an ACNC registered charity if the fixed term contract is entered into on or after the 6 December 2023 and before 1 July 2024.
There are a few similarities between these types of employment:
Contact us for a free consultation
We provide legal advice to business and individuals across Australia, no matter which State or Territory you are located. Our easy-to-access, online legal services mean that you can talk to our lawyers wherever you are, at a time that suits you.
4.8
Google Reviews
Don’t hesitate – reach out for your free legal assistance today. Your peace of mind is just a click or call away!
The Fair Work Act provides a return-to-work guarantee when an employee takes parental leave. This ensures that employees have the right to return to their original position at the end
Employers need to take steps to avoid a discrimination claim and understand how to defend them. Discrimination claims can be challenging for employers to defend. This is because there is
It is important how to defend an unfair dismissal claim if your business employs staff. Unfair dismissal claims can impact employers financially and their reputation. Understanding the legal process, documentation
