Two year terms, two years on: fixed term contract limits reshape the workforce

It has been two years since the Federal Government’s Secure Jobs, Better Pay reforms overhauled the rules that govern the use of fixed term and maximum term contracts, and the impact is still being felt across workplaces.

From 6 December 2023, employers lost the ability to rely on rolling fixed/maximum term arrangements beyond two years, with only a handful of exceptions. The rules were designed to stop the practice of 'permanent temporariness' and push employers towards ongoing employment.

Now, on the two-year anniversary, it is a good time to review any contracts entered into around the time of commencement, reflect on what has changed, what exemptions still apply and where employers need to be careful to stay compliant.

What changed in 2023

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 introduced sweeping restrictions on fixed term contracts. In simple terms:

• time limits: fixed term or outer limit contracts can’t run for more than two years;
• renewal limits: a contract can be renewed only once, and the combined period still cannot exceed two years; and
• back-to-back contracts: employers can’t keep rehiring the same worker on consecutive fixed term contracts for essentially the same job, unless an exemption applies.

The Act also included tough anti-avoidance rules. Employers can’t sidestep the law by ending contracts and re-engaging staff later, hiring someone else to do the same role, or changing job titles and duties to disguise continuity.

And, since December 2023, employers have been legally required to give every new fixed term employee a Fixed Term Contract Information Statement (FTCIS), published by the Fair Work Ombudsman.

What happens if employers get it wrong?

If a contract breaches the rules and no exemption applies, any clauses that are aimed to make it 'fixed term' are simply invalid. The rest of the contract still stands, meaning the worker is treated as a permanent (or ongoing) employee with all the entitlements that come with that status. Potentially significant civil penalties are available for breaching the two-year cap, making compliance all the more important as the two-year anniversary approaches.

This puts the onus firmly on employers to get the contract terms right from the outset and to act, before the two-year anniversary, to address any 'permanent temporary' contracts that may have fallen through the cracks.

When fixed term contracts are still allowed

The law does allow for flexibility in some situations, by describing a number of exemptions to the general rule. Employers can continue to use fixed term contracts if:

• the role involves a distinct, specialist project;
• the worker is employed under a training arrangement (such as an apprenticeship);
• the work is tied to seasonal or peak demand;
• the contract is to cover a temporary absence (for example, parental leave cover);
• the employee is paid above the high-income threshold (currently $183,100, which will increase from 1 July 2026);
• the role is a governance position with a set term under corporate or association rules;
• the work is government-funded for more than two years, and there is no reasonable prospect of funding renewal after it ends; or
• a modern award permits it.

The Government also introduced the Fair Work Amendment (Fixed Term Contracts) Regulations 2023 to give more breathing space to some industries and to clarify how the high-income threshold applies to part-time or part-year employees.

The employer experience two years on

Since the reforms came into effect, many organisations have had to rethink their workforce planning. Common adjustments have included:

• redesigning contract templates to meet the new rules;
• shifting towards permanent employment for roles that previously cycled through fixed term arrangements;
• tighter internal processes to assess whether an exemption applies before offering a fixed term role; and
• closer compliance checks around issuing the FTCIS.

The days of using fixed term contracts as a default option for general workforce flexibility are largely gone, and the changes have led to alternative options for employers reliant on short-term government funding (granted for less than two years and which does not qualify for an exemption).

Instead, employers are reserving these contracts for genuinely time-limited needs (including those set out in the exemptions above) or, in many cases, defaulting to permanent/ongoing employment instead.

Why it matters now

The two-year milestone is more than a symbolic marker. By now, many of the first contracts entered after December 2023 are reaching their end point. Employers who are considering renewals — or thinking about offering a new fixed term contract to the same employee — must tread carefully.

Missteps here risk converting fixed term staff into permanent employees, with all the associated costs and obligations and exposure to civil penalties. Regulators have also signalled that enforcement action will be taken in cases where employers are seen to be deliberately skirting the rules.

Key takeaway

Two years after the reforms began, the message is clear: fixed term contracts are the exception, not the norm. Employers who continue to rely on them – including in government-funded sectors, and employers of high earners – need strong systems to ensure they fall within a relevant exemption, backed by clear documentation and compliance checks. The contracts themselves need to demonstrate the basis on which they are permissible under the rules.

As more contracts signed under the new regime come up for renewal, now is the time for organisations to double-check their practices. Those who fail to do so may find themselves with permanent employees, whether they planned for it or not.

If you would like help navigating the world of fixed term contracts, please contact our Employment, Workplace Relations and Safety Team.

This article was written by employment law Partners Rachel Drew and Rose Dimitrious.