The upcoming limitations on fixed term employment contracts

In early December 2022, the federal government passed the Secure Jobs Better Pay Bill which included changes to fixed-term contracts. The changes are aimed at restricting employers’ use of these types of contracts to avoid employment obligations associated with ongoing employment relationships.

From 6 December 2023, a contract of employment must not include a term that provides the contract will terminate at the end of a fixed (identifiable) period if:

(a) the period is greater than 2 years; or

(b) the contract can be renewed so that the employee is employed for more than 2 years; or

(c) in certain circumstances, the employee is employed under consecutive contracts with that employer.

A contract will be considered consecutive where the new contract was for the employee to perform the same, or substantially similar, work as the employee is required to perform under the old contract. Moreover, there needs to be substantial continuity of the employment relationship between the parties during the period between the previous contract termination and the current contract coming into effect.

In short, any fixed-term contract greater than two years, or consecutive contracts totaling more than two years will be caught by these new amendments, the effect being that employees will be deemed permanent ongoing employees. Anti-avoidance provisions will also come into effect where employers take action to skirt around the provisions i.e. delaying the start of an otherwise 'consecutive contract'.

There are however some exceptions where a fixed-term contract may be permissible. These include where:

• a modern award permits the term;

• the employee is engaged under the contract to perform only a distinct and identifiable task involving specialised skills;

• the employee is engaged in relation to a training arrangement;

• the employee is engaged to undertake essential work during a peak demand period;

• in the year the contract is entered into, the employee’s earnings under the contract is above the high-income threshold (currently $162,000) for that year; and

• is funded in whole or in part by government funding, and there is no real prospect that funding will continue.

As with the Pay Secrecy provisions, this new section can also trigger a general protections claim if an employer takes adverse action against an employee in respect of the fixed-term contract provisions.

Takeaway: Consider if any fixed-term appointments are likely to be caught by these provisions and if any exceptions apply. Practically, you may need to convert fixed-term employees to ongoing employees to ensure compliance and avoid any penalties or claims under the Act.