What are fixed term contracts?

 

As the name suggests a fixed term contract is an employment contract that applies for a specified period of time and comes to an end automatically at the end of that period. This period of time is typically defined in the employment contract with reference to either: 

  • the specific start and end dates; or
  • an end date set by a specific event; or  
  • the end of a specific task or project. 

The term “fixed term contract” is often used to describe different types of contract which apply on a temporary basis. The first of these are “true fixed-term” contracts which will only terminate after the specified period has come to an end. In other words, there is no right to terminate the contract prior to the end of the fixed term.The next is known as an “outer-limit” or “maximum-term” contract which includes an ability to terminate the contract with notice before the expiration of the fixed period. 

Why would you need a fixed term contract?

 

There are many reasons why an employer may need to use a fixed term contract. Such as:  

  • you work in an industry that is dependent on government funding that is subject to renewal;  
  • to provide cover for a permanent staff member who is taking leave; and 
  • to meet a genuine short-term need for a particular skill, task, season or project.   

 

What is changing with fixed term contracts?

 

On 6 December 2022 the Federal Government’s Secure Jobs Better Pay Bill received Royal Assent and introduced a raft of new legislative changes to incrementally be implemented throughout the coming year. For more information about the changes that have already come into effect so far please see our earlier blog here

The last of these changes have now come into effect as of 6 December 2023 and are in relation to fixed term contracts (both true fixed-term and outer-limit contracts). These changes limit the circumstances under which an employee may be employed under a fixed term contract and include new: 

  1. time limitations;  
  2. renewal limitations; and 
  3. consecutive contract limitations.

 

 

Time limitation 

Under the new changes, the fixed term of the contract cannot be for a period of 2 years or longer (including any extensions or renewals). 

 

Renewal Limitation 

A fixed term contract cannot have an option in the contract to extend the fixed term of the contract to a time longer than 2 years. Further to this, a fixed term contract cannot be extended or renewed more than once. 

 

Consecutive contract limitations

An employee cannot be employed on multiple consecutive fixed-term contracts if the contract is for substantially the same work as previously or there isn’t a substantial break in between employment periods or if any of the following apply:

 

  • the total period of employment across the two contracts is for more than 2 years;  
  • the new fixed term contract can be renewed or extended; 
  • the previous fixed term contract was extended; or 
  • there was an initial fixed term contract in place before the previous contract that was mainly for the same work and there was continuity of the employment relationship between the period. 

Who do these limitations apply to?

 

These limitations will apply to all fixed-term contracts entered into after 6 December 2023. For contracts entered into before this date, the restrictions will need to be considered when applying the consecutive contract limitation for any new fixed term contract entered into after 6 December 2023. 

If a fixed term contract does not comply with the new limitations above, the contract will still be valid except that the specified end date of the contract will not apply and for all purposes the employee will be treated as a permanent employee.

In addition to these changes, employers looking to still use fixed term employment contracts must provide the employee with the Fixed Term Contract Information Statement (FTCIS). You can access a copy of the from the Fair Work Ombudsman’s Website here.

Need further help? 

If you require any assistance in understanding how these changes will impact your business or whether your business is likely to meet one of the listed exceptions please contact EI Legal at: info@eilegal.com.au

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