Federal IR Changes – Fixed term contracts

The Fair Work Legislation Amendment (Secure Jobs Better Pay) Act 2022 (the Act) commenced on 7 December 2022 and makes changes to many provisions of the Fair Work Act 2009 (Cth) (the FW Act) that largely give more rights and power to employees (including by way of unions) and the Fair Work Commission (the FWC).

An important change affecting employment arrangements that employers should be aware of are new limitations on the use of fixed term contracts.

While the federal government recognises that fixed term contracts do have a genuine role to play in some circumstances, they are also concerned that fixed term contracts can exacerbate job insecurity for employees when they are used for the same role over an extended period or where employees are subject to rolling contract renewals for jobs that would otherwise be permanent.

New limits on fixed term contracts

The Act now limits an employer’s ability to use fixed term contracts, subject to various exceptions. Relevantly, an employer is prohibited from entering:

• a fixed term contract with an employee for the same role for longer than two years;
  
• consecutive fixed term contracts with an employee for the same role that, in total across all contracts, exceeds two years; or
  
• a fixed term contract with an employee for the same role that could be extended or renewed more than once.

Exceptions to the limits on fixed term contracts

There are exceptions to the prohibitions on fixed term contracts. For example, they do not apply if a worker:

• has specialised skills that the employer does not have, but needs to complete a distinct and identifiable task involving those skills;
  
• is engaged as part of a training arrangement (for example, an apprentice or a trainee);
  
• is engaged to do essential work during a peak period. This is likely to include short term workers during peak agricultural production periods; or
  
• is engaged to undertake work during an emergency or during the temporary absence of another employee. This is likely to include parental leave or workers’ compensation related absences.

The prohibition on fixed term contracts also does not apply if, in the year the contract is made the employee’s earnings are above the high-income threshold for that year.

Anti-avoidance mechanisms

The Act also contains various anti-avoidance mechanisms to prevent an employer avoiding the operation of the prohibitions on fixed term contracts. For example, an employer must not:

• terminate an employee’s employment for a period;
  
• delay engaging an employee for a period;
  
• not re-engage the employee and instead engage another person to perform the same or substantially the same work; or
  
• change the nature of the work required to perform,

for the purposes of avoiding the prohibitions in relation to fixed term contracts.

Protections for employees covered by prohibited fixed term contracts

The practical effect of the provisions dealing with fixed term contracts is that a contract purporting to be “fixed term”, will in fact be a permanent contract and enforceable as such.

If an employer breaches the prohibitions in relation to fixed term contracts, the contract will still be valid and the employee can enforce the terms of that contract. However, any term that provides the contract will terminate at the end of the relevant period is not enforceable and has no effect.

Dealing with disputes about fixed term contracts

If a dispute about the new prohibitions cannot be resolved between the employer and employee at the workplace, the Act allows the parties to:

• apply to the FWC to resolve the dispute; or
  
• apply for an order from a Magistrates Court or the Federal Circuit and Family Court of Australia using the small claims procedure.

Fixed Term Contract Information Statement

From 7 December 2023, employers who enter into a fixed term contract must provide the employee before commencing employment (or as soon as practicable after entering into it) a Fixed Term Contract Information Statement.

Commencement

The provisions of the Act dealing with fixed term contracts commence from 7 December 2023.

Penalties

Where an employer breaches the limits (or doesn’t provide an employee with the Fixed Term Contract Information Statement), civil penalties will apply. Currently, the maximum penalty for an ordinary contravention is $16,500 per contravention and $165,000 per contravention for a serious contravention.

What does this mean for employers?

Employers who have or rely on fixed term contracts as part of their business will need to examine their fixed term contract arrangements to ensure they are consistent with the requirements of the Act. In some cases, the prohibition on fixed term contract may require employers to use other employment arrangements.

Reach out to one of our team members for help in understanding the impacts of the changes to fixed term contract arrangements in your business.