New rules for fixed-term contracts from 6 December 2023: are you ready?

30 Nov 2023
2 minutes
Employers should review their staffing profile and needs, and review their contract templates, to ensure they are ready for the new fixed term contract limitations commencing from 6 December 2023, although the Minister has granted leeway for five specific industries until 1 July 2024.

From 6 December 2023, new limitations will apply to fixed term contracts.

The reforms introduced by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, which received Royal Assent on 6 December 2022, include the significant amendments to limit the use of fixed-term contracts in order to move more employees into permanent employment. The provisions not only limit an employer's ability to offer fixed term contracts but will also result in the automatic conversion of employees from fixed-term contracts to permanent contracts in certain circumstances.

The new limitations and changes employers need to be aware of are:

  • Maximum two-year contracts: a fixed term contract cannot be for a period of more than two years, including renewals and extensions.
  • No more than two consecutive contracts: in certain circumstances, an employee cannot have more than two consecutive contracts for the same or similar work.
  • Anti-avoidance provisions: there are new provisions to prevent employers from avoiding limitations imposed on fixed term contracts (such as terminating employment, delaying re-engaging an employee, not re-engaging an employee and instead engaging another person to do substantially similar work, or change the nature of the work or tasks to be performed).
  • Fixed Term Contract Information Statement: employers will be required to provide employees on a fixed term contract with a Fixed Term Information Statement.

Contracts that fail to comply with these new provisions will remain valid except for end date of the contract. As a result, the employee will be treated as a permanent employee.

Are there any exceptions?

There are a variety of exceptions to these prohibitions, including where the employee is:

  • performing a specific task;
  • performing essential work during a peak demand period, emergency, or a temporary absence of another employee;
  • under a training arrangement or government funding arrangement of no more than two years;
  • earning above the high-income threshold for the year in which the contract is entered into (currently $167,500 a year);
  • appointed to a governance position that is time limited under the governing rules of a corporation or association;
  • performing work that is wholly or partly government-funded for more than two years and there is no reasonable prospect that the funding will be renewed at the end of that period; or
  • a modern award permits the use of fixed-term contracts in those circumstances and permits the term of the contract.

The Minister for Employment and Workplace Relations can also make regulations providing for additional exceptions to the limitations.

Delay of commencement of changes for certain industries

On 23 November 2023, the Minister released the Fair Work Amendment (Fixed Term Contracts) Regulations 2023. The Regulations delay the commencement of the fixed term changes for some industries until 1 July 2024.

The amendment also clarifies how to calculate the high-income threshold exception where an employee works less than full-time hours or for only part of the year.

Employees in the following categories have an additional seven months to prepare for the fixed term contract changes:

  • organised sport, including athletes, coaches, performance support professionals, match officials, governing bodies and their members;
  • organising bodies for international sporting events which are not regularly held in Australia,
  • live performance;
  • higher education; and
  • employees funded by charities, including philanthropic funding, and testamentary gifts or contributions for charitable purposes.

Key takeaway

It is critical that employers are across these changes and have made the necessary arrangements to prepare for the upcoming changes. Failing to get it right can be a breach of the Fair Work Act and can result in fixed term employees automatically being treated as permanent employees.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.