Upcoming changes to Fixed Term and Maximum Term Contracts

From 6 December 2023, the following limitations will apply to the use of fixed term and maximum term1 employment contracts:

  1. Time limitation: A fixed term contract cannot be for longer than two years, including extensions and renewals.
  2. Renewal limitation: A fixed term contract cannot have an option to extend or renew the contract so that the employment period (including the extension or renewal period) is longer than two years. A fixed term contract also cannot be renewed or extended more than once (regardless of the length of the initial contract and any extension periods).
  3. Consecutive contracts limitation: An employer cannot employ someone on a new fixed term contract (New Contract) if the contract is for work substantially the same as a previous fixed term contract (Previous Contract) and there is not a substantial break in the employment relationship between the Previous Contract and New Contract and at least one of the following circumstances apply:

a) the total period of employment (i.e. the total term of the Previous Contract and New Contract) will be more than two years;

b) the New Contract includes an option to renew or extend;

c) the Previous Contract had been extended;

d) there had been a prior fixed term contract (Prior Contract) in place before the Previous Contract which was for work substantially the same and there was continuity of the employment relationship between the Prior Contract and the Previous Contract.

If a contract does not adhere to these limitations, its end date is not effective. Other terms and conditions in the contract will remain enforceable. This means that the affected employee will retain the benefits of their contract and gain entitlements to notice of termination and redundancy payments, as well as the potential to file unfair dismissal proceedings.

Importantly, employers must not take certain actions to avoid the new rules (e.g. dismissing an employee before they reach 2 years’ employment). Any such conduct may be considered adverse action and will expose an employer to orders for compensation and pecuniary penalties.

There are a number of exceptions where the limitations on the use of fixed term contracts will not apply, including where:

  • the employee is engaged to perform only a distinct and identifiable task involving specialised skills;
  • the employee is engaged under a training arrangement under state or territory law;
  • the employee is engaged to undertake essential work during a peak demand period;
  • the employee is engaged to undertake work in emergency circumstances or as a temporary replacement of another employee;
  • in the year the contract is entered into, the employee earns more than the high-income threshold for a full-time employee (currently $167,500). A pro rata calculation of the high income threshold applies for part-time employees;
  • the contract is for a position which is funded in whole or in part by government funding, the funding is payable for a period of more than 2 years, and there are no reasonable prospects that the funding will be renewed;
  • the contract relates to a governance position that is for a limited time (based on the rules of a corporation or association);
  • an Award covers the employment and that Award allows for different fixed term contract options.
Employers also need to ensure they provide new fixed term contract employees with the Fixed Term Contract Information Statement, which is due to be published by the Fair Work Ombudsman on or before 6 December 2023. This must be provided in addition to the Fair Work Information Statement that must also be provided to all new employees. A failure to do so will expose the employer to an order for pecuniary penalties.

From 6 December 2023, employers and employees may be able to seek the assistance of the Fair Work Commission to assist in resolving disputes relating to a fixed term contract. Alternatively, employees may commence proceedings in a small claims court. The Fair Work Ombudsman will also have the power to start court proceedings for alleged breaches of the new rules.

In light of these changes, it would be prudent for any employer utilising fixed term or maximum term contracts to consider the implication of these new rules. If a fixed term or maximum term contract is to be offered and a relevant exception applies, the employer should consider expressly identifying the applicable exception within the contract.

1 A fixed term employment contract is an employment contract which terminates on a fixed date. A maximum term employment contract is an employment contract which terminates on a fixed date if it is not terminated earlier. For the purpose of this newsletter, we have used “fixed term contract” as a catch-all term. The rules apply to maximum term contracts in the same manner as fixed term contracts.

This article may provide CPD/CLE/CIP points through your relevant industry organisation.

The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.

Lara Radik
Emma Malloy
Senior Associate

Related insights

Closing the Independent Contractors Loophole and Addressing Unfairness

7 June 2024
Read more

Goddard v Richtek Melbourne Pty Ltd [2024] FWC 979

14 May 2024
Read more

The Right to Disconnect

1 March 2024
Read more

Shutdown periods and forced leave: are you familiar with your business’ obligations?

1 May 2023
Read more