In a fix: the new limits on use of fixed term contracts under the Fair Work Act

June 15, 2023

The last six months have been full of changes to employment laws (and there are more to come).  

One significant change that is now fast approaching, is the introduction of new restrictions on the use of fixed term contracts (FTCs).

This change is due to take effect in the Fair Work Act 2009 (Cth) (FW Act) on 6 December 2023.  The new restrictions on FTCs are part of the Government's effort to minimise insecure work and job insecurity.  

If your organisation employs employees on FTCs (whether they are maximum term/outer limits contracts that can be terminated on notice before expiry, or 'true' specified term contracts that cannot be terminated on notice before expiry), it's important to start planning for this change now.

What do organisations need to do to prepare for the new rules?

  1. Familiarise yourself with the new limits on lawful FTC use:
           (a) generally, any FTCs entered into or varied from 6 December 2023 will not be able to run for more             than two years or be renewed beyond that length of time, or be renewed or extended more than             once within that length of time, unless an exception applies; and
           (b) for employees already working under FTCs (and for those employees who will enter into an FTC             on or after 6 December), there will be new prohibitions and limitations on the use of consecutive             FTCs.
  2. Consider whether you may be able to rely on any permitted exceptions. Examples of some exceptions include using FTCs under award rules, for apprentices or trainees, for replacement employees providing parental leave cover, for employees performing a distinct and identifiable task involving specialised skills, and where the role is funded by government funding in defined and limited circumstances.
  3. Assess whether, in a situation where an employee was on an FTC prior to 6 December, offering them a new FTC may breach new prohibitions on consecutive FTCs.
  4. Consider revising your contract templates and implement practices to ensure that only compliant FTCs are offered in future.
  5. Prepare to issue FTC employees with the Fixed Term Contract Information Statement when entering into an FTC from 6 December 2023 (the Statement will be released by the Fair Work Ombudsman closer to 6 December).

What will happen if an FTC breaks the rules?

If a purported FTC breaks the rules, the clause(s) that provide for the FTC to terminate at the end of the fixed term will be ineffective and the contract will automatically be treated as an ongoing contract of employment.  All other terms of the contract will remain effective.  Without an effective notice clause, an employee may be able to claim 'reasonable notice', which can be expensive.

Entering into a contract that breaches the rules attracts a civil penalty, as does failing to give an employee the Fixed Term Contract Information Statement.  Civil penalties are currently up to $82,500 for a body corporate ($825,000 for a serious contravention) or $16,500 ($165,000 for a serious contravention) for individuals, including individuals who are knowingly involved in a contravention.

Anti-avoidance rules also apply: an employer can be penalised for taking measures in relation to an employee's employment, with the aim of avoiding the effect of the FTC restrictions.

How will disputes about these provisions be handled?

The FWC will be able to conciliate, and if necessary arbitrate, disputes about the operation of the FTC rules.

Civil penalties for non-compliance may be awarded against employers in some cases.

In addition, it will be possible to bring disputes about matters such as whether the relevant FTC is permitted or not; whether one of the exceptions applies to permit the FTC to operate; or whether a termination clause in an FTC is effective, before a court as a small claims proceeding.  Small claims proceedings operate, by default, without the parties being legally represented.  This means the rights and duties of the parties in relation to an FTC may be determined in a relatively informal manner in some situations.

Next steps

Please contact a member of the Thomson Geer Employment and Safety team for advice on how the rules will impact on the particular circumstances of your organisation, and for assistance with preparing suitable FTC templates for use from 6 December 2023.

This insight follows on from our article of 24 January 2023, which summarises some of the exceptions and anti-avoidance provisions, and is available: here.

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