On 2 December 2022, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill was passed into legislation. One of the changes included is the regulation of fixed term contracts. This new set of statutory requirements will commence from 7 December 2023, providing employers with plenty of time to get their contractual arrangements are in order to ensure compliance.

What are the new fixed term rules?

The new provisions make it a violation, with some exceptions, for an employer to enter into a fixed term contract with an employee:

  • For a period that exceeds two years.
  • That allows the contract to be extended or renewed for a period that exceeds two years.
  • That provides for an option or right to extend or renew the contract more than once.
  • Where the contract continues the same employment relationship and work duties as a previous fixed term contract, and
  • The contract and previous fixed term contract exceed two years in length.
  • The contract or previous fixed term contract contains a right of renewal or extension, or
  • The employee has previously been engaged under two consecutive fixed term contracts.

Additionally, it will be an offence for an employer to take action in order to avoid any of these conditions.

What are the exceptions?

There are a range of exceptions to these new rules including where:

  • The employee has specialised skills that the employer does not have, but needs, to complete a specific task.
  • The employee is engaged as part of a training arrangement.
  • The employer needs additional workers to do essential work during a peak period.
  • The employer needs additional employees during an emergency, or needs to replace a permanent employee who is absent for personal or other reasons.
  • The employee earns over the high income threshold for the first year of the contract.
  • The employer is reliant on government funding to directly finance the employee’s position and there are no reasonable prospects that the funding will be renewed.
  • The employee is appointed under governance rules of a corporation or other association and those rules specify a length of time that the appointment can be in place.
  • The employer is permitted to enter into the fixed term contract by a term specified in a modern award that covers the employee.

What does this mean for fixed term contracts?

If an employer enters into a fixed term contract with an employee that conflicts with any of these exceptions:

  • The ‘expiry mechanism’ will be considered invalid, and
  • All other terms in the contract will remain valid.

This means that the contract will be an ongoing contract which is subject to the usual termination rules in any relevant industrial instrument and legislation. Solutions such as those available through the unfair dismissal framework in the legislation may also be available.

What does this mean for employers?

If fixed term contracts are part of the employment arrangements with some or all employees, employers are on notice that some arrangements may not be permitted once the rules take effect. Now is the time to review and assess if exceptions will apply that permit the ongoing use of fixed term contracts or whether those arrangements will need to be transitioned sooner rather than later.

Any option will need to be considered carefully alongside the terms of any applicable modern award that covers affected employees in consideration of any applicable exceptions, and tailored to the operational needs of employers. If you need assistance understanding the contractual arrangements of your business in line with these updates, get in touch with our team now.

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