New Fixed Term Contract Restrictions Apply from 6 December 2023

Employers may recall that significant restrictions on the use of fixed term contracts were introduced in the Secure Jobs Better Pay amendments to the Fair Work Act 2009 which were voted up in the Commonwealth Parliament 12 months ago.

These restrictions come into force from 6 December 2023.  They also apply to maximum term contracts, as well as to fixed term contracts.

Fixed term contract information statement

It is important to remember that a Fixed Term Contract Information Statement (FTCIS) must be provided to all employees you now engage on fixed/maximum term contracts from 6 December 2023.  The FTCIS must be given to the employee before or, as soon as practicable after, the contract is entered into.

Importantly, the Fair Work Information Statement (FWIS) which employers are already required to provide to new employees must also be given to new fixed/maximum term contract employees, in addition to the FTCIS.

The Fair Work Ombudsman has made the FTCIS available to download from its website.  Please click on the attached link to access this: Fixed Term Contract Information Statement – Fair Work Ombudsman

What are the new restrictions?

The use of fixed/maximum term contracts is prohibited where:

1. the term is greater than 2 years;
2. there is a contract renewal which takes the total of both terms to greater than 2 years;
3. the contract for the second term contains an option for renewal or extension (i.e. there cannot be 3 contract terms, no matter how short the terms are – e.g. even if the terms are only 2 months each);
4. the first contract contained an option for extension that has been exercised (again, you cannot have 3 contract terms); or
5. the first contract was not in fact the first contract in time and there was a previous one.

The prohibitions above apply if:

1. the contracts involve the same, or substantially similar, work; and
2. there is substantial continuity of the employment relationship.

Anti-avoidance provisions exist, meaning that businesses cannot engage in conduct to avoid the operation of these provisions.

Exceptions

The new restrictions do not apply to the following arrangements:

1. if the engagement is to perform a distinct and identifiable task involving specialised skills;
2. it is a training arrangement;
3. the engagement is for:
   • essential work during a peak demand period;
   • work during emergency circumstances; or
   • during a temporary absence of another employee;
4. the employee earns above the high income threshold for the year in which contract is entered into (currently $167,500 per annum);
5. the contract is for performance of work:
6. • funded wholly 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 after that period; or
7. the applicable Modern Award permits fixed/maximum term arrangements.

Conversion of prohibited fixed/maximum term contract into ongoing employment contract

Where you have a fixed/maximum term contract in breach of the new requirements, the contract will automatically convert to a contract of ongoing employment because:

1. the unlawful contract term is taken to have no effect; and
2. the validity of other terms in the contract is not affected.

If the contract has converted, the employee may then be required to be given notice of termination, severance pay on redundancy and will also have access to the statutory unfair dismissal remedy.

Burden of proof

The burden of proof is on employers to demonstrate that any relevant exception applies.

Steps for employers

To ensure compliance, employers should do the following:

1. ensure the FTCIS is provided when entering into new term contracts;
2. review your current fixed/maximum term contract templates for compliance (e.g. remove provisions for any more than one renewal);
3. work out whether any exceptions apply to relevant employees;
4. establish a system to manage fixed/maximum term contracts and identify any contracts in breach that may have converted to ongoing employment contracts; and
5. convert your employees to contracts of ongoing employment when their fixed/maximum term contracts are no longer effective owing to the new restrictions.

Please contact our team if you have any queries.