The rules on fixed-term employment contracts have recently been updated. The new rules on fixed term employment will apply from 6 December 2023.
These new regulations set limits on the maximum duration of employment and options for extension. They also apply to consecutive contracts to protect the rights and benefits of employees on fixed term contracts.
In this article, we will 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.
What is a fixed-term employment contract?
A fixed-term employment contract in Australia 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.
The terms and conditions of employment, including job duties, pay, and termination conditions, are typically outlined in the contract. These contracts are governed by the Fair Work Act 2009 and must comply with standards set out in modern awards or enterprise agreements.
Difference between fixed-term employment contract and a permanent employment contract
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.
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).
What are the new rules on fixed-term employment contracts?
The changes in the rules on fixed-term employment contracts primarily cover time limitations, renewal limitations, and consecutive contract limitations.
Time limitations for fixed term employment contracts
The contract cannot be for a period longer than 2 years including any extensions or renewals.
This means that fixed-term employment contract must not exceed a period of two-years, including any extensions or renewals. Otherwise, an employer will breach the new rules on 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.
Renewal limitations on fixed term contracts
A fixed-term employment contract cannot be extended or renewed for a period longer than 2 years. The contract cannot also be extended or renewed more than once.
An example would be:
“Cleanext Pty Ltd employed Sarrah as master cleaner for a fixed period of 15 months and was extended for another period of 12 months.”
This is not allowed since the fixed period of employment exceeds the allowable maximum period of 2 years. Sarrah was first employed for 15 months and was extended for another 12 months which equals 27 months. This is equivalent to 2 years and 3 months.
Another example would be:
“DCNG Studio Pty Ltd employed Greg as a dance instructor for a fixed period of 6 months. Before the expiration of Greg’s employment, DCNG Studio extended his employment to another 6 months. A second extension was granted to Greg 3 days before the extended 6-month period will end.”
Greg has a total of 18 months of employment with DCNG Studio, equivalent to 1 year and 6 months. However, this is not allowed even though the period including the extension did not exceed 2 years. This is because Greg’s employment was extended more than once. The new rules only allow one extension, and such extension must not be longer than 2 years.
Consecutive fixed term contract limitations in employment
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 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.
What is a Fixed Term Contract Information Statement (FTCIS)?
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
Employers must 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 (FWIS)
Further, 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.
Situations where the limitations do not apply
The limitations on fixed-term employment contracts do not apply to the following:
- 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.
Consequences for failure to comply with the limitations and exception
If a fixed-term contract fails to comply with the specified limitations, the designated termination date of the contract becomes invalid. As a result, the contract will not automatically terminate upon reaching the specified end 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 may be that an employer may 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.
Remedy in case of dispute in the application of the limitation or exception
In case of dispute in the application of the limitation or exception, the employer and employee can resolve the matter through the following remedies:
- discussion in the workplace between the employer and employee; or
- if the dispute cannot be resolved in the workplace, then the matter can be brought before the Fair Work Commission or in a civil case before the small claims court.
- The Secure Jobs, Better Pay Act amends the FW Act to include new obligations in respect of fixed-term employment contracts, effective from December 6, 2023.
- 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.
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.
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.
- 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.