IMPORTANT: Limitations on fixed-term employment contracts

Earlier in the year we saw a raft of controversial amendments to the Fair Work Act 2010 via the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022. One of those amendments related to changing the rules on the application of fixed-term employment contracts. Employers who contravene these new amendments to the Fair Work Act may face penalties of up to $165,000 for a serious contravention, or up to $16,500 for a contraventions.

A fixed-term employment contract is where an employee is engaged by an employer for a pre-determined period, a fixed period. 

Historically, employers have used fixed-term employment contracts to cover planned temporary absences such as parental leave absences, and extended sabbaticals, for special projects or for businesses that receive funding. 

The legislation previously put no limit on how many times an employer could extend or renew an employee’s fixed-term contract. 

It was common practice for employers to regularly extend or renew fixed-term contracts year after year either because there was new or renewed funding, or additional special projects were created. 

The Secure Jobs, Better Pay Act has put a stop to this practice. 

From 6 December 2023, limitations are now in place regarding the usage of fixed-term employment contracts. The restrictions that have been put in place include the following:

• The fixed term must be for no longer than 2 years.
• Successive fixed-term contracts cannot be entered into where the total duration of the successive contracts would extend beyond two years.
• An employee not being engaged on either;
  • Three consecutive contracts for the same (or similar) type of work/​duties; or
  • A second fixed term that was in succession to a previous fixed term that had already been extended or renewed or where the second fixed-term contains an option for renewal or extension.

There are a number of exemptions to the new limitations including:

• Employees engaged to perform work for a special task or project using specialist skills.
• Employees who are engaged through a training arrangement.
• Employees who are engaged as essential workers during peak demand.
• Employees who are engaged during emergencies.
• Employees who are earning more than the high-income threshold, importantly at the time of the proposed fixed-term contract
• Employees who are engaged in a governance role, and have a prescribed time limit under a corporation or association governing rules
• The contract is either wholly or partly funded by government funding and the funding is for no more than 2 years and there are no reasonable prospects of the funding being renewed.
• A term in a Modern Awards permits a fixed term contract for greater than 2 years.
• Or the contract is a kind prescribed by the regulations.

Importantly, the new limitations will only apply to fixed term contracts entered into after 6 December 2023, unless a successive contract is entered into, noting that if a contract was entered into preceding 6 December 2023, the Court will give regard to that existing contract when assessing the matter in a dispute.

What do employers need to do?

Employers must immediately review all of their fixed-term employment contract arrangements and identify if any contracts are at risk. Should there be some cases where their employer is no longer able to utilise a fixed-term employment contract, permanent ongoing employment contracts should be issued.

Employers need to also carefully assess whether or not any of the exemptions apply to their business. For future planning, employers need to carefully consider their ability to utilise fixed-term employment contracts in the future. 

How we can help?

Together with the Australian Chamber of Commerce and Industry (ACCI), the South Australian Business Chamber is pleased to provide a useful fact sheet relating to these important changes, access your copy here.

Our team of Industrial Relations specialists are on hand to help you navigate through these new limitations and can review your existing contracts along with providing you with compliant contract templates for the future. 

Get in touch with our Business Advice Hotline today on 8300 0000 (select option 1) and read more about our workplace relations team on our website.