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.
Key takeaways
- The Secure Jobs, Better Pay Act amends the Fair Work Act to include new obligations in respect of fixed-term employment contracts
- These changes introduce new limitations on the duration and renewal of fixed-term contracts, as well as restrictions on consecutive contracts, to safeguard employee rights
- Employers must now provide a Fixed Term Contract Information Statement (FTCIS) to employees entering into fixed-term contracts, outlining the rules and exemptions related to these contracts
- Additionally, the Fair Work Information Statement (FWIS) must be given to all new employees to inform them of their employment rights and conditions
- It is crucial for employers to understand and comply with these new rules to avoid potential legal repercussions
What is a fixed-term employment contract?
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.
Differences between Fixed-term and Permanent Employment
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.
New rules for Fixed-term Employment Contracts
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:
Maximum time limit of 2 years
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.
Example
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.
Renewal and Extension limits
Limit of maximum time limit of 2 years
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.
Example
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.
Limit of one renewal or extension only
Further, fixed term contracts must not be extended or renewed more than once.
Example
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.
Consecutive term limits
An employee is not allowed to enter into a subsequent fixed-term contract if the following are present:
- there was a previous fixed-term contract entered into by the employee with the same employer;
- the job description stipulated in both the former and the current contract is the same; and
- there is a significant degree of uninterrupted continuation in the employment relationship from the old contract to the new one,
provided, however, that at least one of the following situations is also present:
- the previous contract has an option to extend, and such an option was used;
- the cumulative duration of employment of the previous and current fixed-term contracts exceeds two years;
- the current fixed-term contract includes a provision for renewal or extension, or
- there was an initial contract in place before the preceding contract that was for a fixed term, for a similar work and substantial continuity in the employment relationship was made.
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:
- the previous contract included an extension clause that was used by the employer;
- the aggregate duration of service across both agreements exceeds two years; and
- the roles defined in the contracts are identical, with an uninterrupted employment link between the employer and employee.
When the new limitations do not apply
There are exceptions to the new rules and limitations. Limitations on fixed-term employment contracts do not apply to the following type of employment:
- to contracts entered into before 6 December 2023. However, in determining the consecutive contracts limitation entered on or before 6 December 2023, it is necessary to take into account any fixed-term contracts that commenced before 6 December 2023;
- to casual employees;
- to specialised skills for a specific task;
- to training arrangements like apprenticeship or traineeship;
- when performing essential work during a peak demand period;
- during emergency or temporary circumstances;
- to high income employees;
- to government positions and positions subject to government funding;
- if an award covers the employment and it allows any of the circumstances limited by the new rules;
- organised sport;
- high performance sport;
- live performance;
- higher education; and
- positions funded by philanthropic entities or testamentary gift or contribution.
Information Statements
Fixed Term Contract Information Statements
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:
- the definition of a fixed-term contract
- the restrictions applicable to fixed-term contracts
- the exemptions to these restrictions
- the procedures for addressing disagreements regarding the restrictions and exemptions of fixed-term contracts
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).
Fair Work Information Statement
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:
- the right to request flexible working arrangements
- modern awards entitlement
- making agreements under the Fair Work Act 2009
- individual flexibility arrangements
- freedom of association and workplace rights (general protections)
- termination of employment
- right of entry
- the role of the Fair Work Ombudsman and the Fair Work Commission
For more information see Fair Work Information Statement.
Consequences for non-compliance
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.
Anti-Avoidance Protections
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:
- ending employment or not re-employing the employee for a period of time
- not re-engaging the employee and employing someone else to do the same or substantially similar work instead, or
- changing the type of work or tasks that an employee does or changing the employment relationship.
If an employer does any of these things, it may also be adverse action.
Frequently Asked Questions
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:
- fixed-term employees have the same entitlements as a permanent employee on their wages, leaves, penalties and rates including paid annual leave, paid sick leave, and notice of termination;
- fixed-term employees have the same employment rights as permanent employees. This means they are protected by the same laws and regulations that apply to permanent employees; and
- both fixed-term and permanent employees can work full-time or part-time.
