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Upcoming changes to fixed-term contracts

Upcoming changes to fixed-term contracts

Navigating the Upcoming Changes to Fixed-Term Contracts

Last year, the Australian Federal Government enacted the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, introducing significant reforms to the country’s industrial relations framework. One notable change is the imposition of restrictions on the use of fixed-term contracts.

The new rules on the use of fixed term employment contracts will start on 6 December 2023.

These aim to restrict the usage of fixed-term contracts beyond a two-year period and to constrain the renewal of rolling fixed term contracts to just one. Such revisions are intended to enhance contract management while ensuring compliance with relevant regulations.

What is a fixed-term contract?

Fixed-term contracts are employment agreements that are applicable for a defined period. They are frequently utilised in heavy industries for employees engaged in specific projects with known or anticipated completion dates. There exists no obligatory obligation to retain the fixed-term employee beyond the conclusion of the specified term.

Presently, there exist no restrictions regarding the utilisation of fixed-term contracts, granting employers the discretion to extend or renew them for any reasonable period.

It is advisable to avoid engaging in unlawful fixed-term contracts to uphold legal compliance and ethical business practices. Additionally, implementing limitations on rolling fixed-term contracts helps maintain integrity and adherence to regulations.

From 6 December 2023, it will be unlawful to enter into a contract of employment that:

  • Has a fixed term of more than two years;
  • Has a fixed term that may be extended or renewed so that the total period is more than two years; or
  • Has a right to extend or renew the contract more than once.

If a fixed term contract has been in place, it will be unlawful to enter into another fixed term contract if:

  • The combined duration of the previous and new contracts exceeds two years;
  • Two fixed term contracts have already been in place;
  • The new contract includes a provision for renewal or extension;
  • Or, the previous contract had an exercised option for extension.

For these rules to apply, there needs to be a sufficient connection between the rolling fixed-term contracts. This will be the case if:

  • The employee’s new contract mandates performing the same, or substantially similar, work as in the previous one.
  • Moreover, there exists a significant continuity in the employment relationship between the employer and the employee, spanning from the termination of the previous contract to the commencement of the new one.

Types of fixed term contracts impacted

The rules apply to both “true” fixed term contracts and maximum term contracts. A “true” fixed term contract has a predetermined end date without the right to terminate beforehand. On the other hand, a contract allows one or more parties to terminate before the end date, despite having a specified end date.

These rules also extend to contracts that are for a specified period, specific tasks, or during a specified season.

Melbourne City

Exceptions to new rules 

 

 

Specialised skills for a specific task 

  • The employee is engaged to perform only a distinct and identifiable task involving specialised skills;

Training arrangements 

  • The employee is employed under a training arrangement (such as apprentices and trainees);

Essential work  

  • Seasonal work, e.g. fruit picking 

Emergency circumstances & parental leave or workers compensation  

  • The employee is engaged to undertake work during emergency circumstances or during a temporary absence of another employee (for example, a period covering someone on worker’s compensation);

High Income Threshold  

  • In the year the contract is entered into the amount of the employee’s earnings under the contract is above the high-income threshold for that year (NB: the high-income threshold is indexed annually on or around 1 July and is currently $167,500 per annum);

Government funding 

  • The contract relates to a position for the performance of work that:
    • is funded in whole or in part by government funding or funding of a kind prescribed by the regulations; and
    • 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 the end of that period.

Modern Award 

  • The employee is covered by an Award that allows for fixed term contracts in the new limitation circumstances;

Anti-avoidance measures

To prevent employers from circumventing the new rules, robust anti-avoidance measures will be implemented. Employers are prohibited from engaging in the following actions if their motive is to evade compliance with the new regulations. Possible actions following termination may include:

  • Temporarily suspending the employee’s employment
  • Postponing the re-engagement of the employee
  • Opting not to re-engage the employee and instead assigning similar responsibilities to another individual
  • Modifying the nature of the employee’s tasks or duties
  • Making other adjustments to the employment relationship.


Workplace rights

The new rules are considered workplace rights for the purpose of the general protections provisions in the Fair Work Act. This means an employer is prohibited from taking adverse action against an employee because of these rights.


Penalties for employers

If an employer contravenes these provisions, they will be at risk of civil penalties of up to $93,900 for a corporation, and $18,780 for individuals.  

Contract Workers

What should employees do to prepare?

Businesses familiar with the flexibility of fixed-term contracts have a lot to consider and plan for. Here are our top tips on preparing for the changes:

1. Evaluate your current use: Assess how you currently utilise fixed-term contracts and determine necessary adjustments for the future.

2. Plan strategically: Keep these changes in mind when planning and tendering for work.

3. Review exceptions: Consider whether any of the exceptions apply to your specific circumstances.

4. Account for notice and redundancy: Incorporate notice and redundancy entitlements into your budgets, if applicable.

5. Track contract dates: Develop a system to stay on top of fixed-term contract dates and extensions.

6. Update contract templates: Adjust your employment contract templates to ensure compliance.

7. Provide information: Starting in December, issue the new Fixed Term Info Statement to any new fixed-term employees.

8. Stay informed about the upcoming Fixed Term Contract Information Statement and ensure its provision to employees entering into a fixed-term contract after 6 December 2023.

Remember, adapting to these changes will help your business navigate the evolving landscape of fixed-term contracts effectively.

Further information:

 Fixed Term ContractMaximum Term Contract 
Length of TermThe employment contract identifies the start date and end dateThe contract ends by a ‘sunset’ date, rather than a fixed date
Early Termination Employers and employees can only terminate the contract at the specified end date The employer and employee can terminate the contract before the ‘sunset’ date, subject to any notice provisions outlined below. 
End DateThe employer and employee agree that the contract will end on the finish date. Notice of termination is not required. The employer and employee agree that the contract will only sometimes last for part of the term. However, a notice of termination is required to end the contract before the nominated ‘sunset’ date. 
Liability for Early Termination If the contract is terminated before the termination date, the termination party may be liable to pay the remaining balance of the contract to the other party.  No additional liability applies beyond contractual and statutory obligations. 

Information provided via webinar, for www.rcsa.com.au presented by Nick Tindley & Brooke Lord.

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