Secure Jobs, Better Pay - Fixed-term employment contract reform

Another significant change to the Fair Work Act 2009 (Cth) (FW Act) made by the Federal Government’s Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 relates to the (in)ability of employers to over utilise fixed-term employment contracts. 

These amendments stem from the belief that ongoing or repeated fixed term contracts do not provide for secure jobs. 

In summary, the Secure Jobs, Better Pay legislation:

• heavily regulates and restricts the use of fixed term contracts, with the new laws set to limit the maximum duration of these contracts to two (2) years;

• contains limited exceptions to the restrictions on fixed term contracts;

• makes a breach of the prohibition on misuse of fixed term contracts an offence and introduces anti-avoidance provisions; and

• provides mechanisms for informing employees of their rights and for the Fair Work Commission to resolve disputes about fixed term contracts.

In this article, we explain what these changes entail, the exceptions that apply, the potential consequences for getting it wrong, and provide some general tips on what employers can do to get ready for these changes.

A refresher - what is a fixed-term contract?

A fixed-term contract is one that provides that employment will cease, by agreement, at the end of a definite period. 

Some fixed-term contracts do not provide any notice period. Other fixed-term contracts provide the right to terminate the contract on notice before the agreed end date. These kinds of contracts are sometimes referred to as a “maximum-term” or “outer limits” contracts. 

Regardless of whether the contract has a notice period or not, there has been little to no regulation of the use of fixed-term contracts under the FW Act. Most employers and employees were free to enter these kinds of arrangements, again and again, often without fear of any consequence or limitation. 

One risk has been using a series of back to back fixed term contracts. The more often these contracts run into one another, the less likely an employer can rely on the end date to terminate the employment relationship. In these circumstances, the employer could still be found to have “dismissed” the employee – leaving the employer exposed to claims for unfair dismissal under the FW Act.

What is changing?

Once the amendments to the FW Act commence (and subject to some limited exceptions), it will be unlawful for an employer to enter a fixed-term employment contract in one of several circumstances, namely where the fixed-term contact provides:

• that the duration of the contract – the identifiable period – is greater than two (2) years; or

• the identifiable period and any other period for which the contract can be extended or renewed exceeds two (2) years; or

• an option or right to extend or renew the contract more than once (regardless of how short the period is).

It will also be unlawful for the parties to enter a series of consecutive fixed-term contracts but where the employee will be performing the same, or substantially similar work, and there is continuity of the employment relationship, and either:

• the sum of the fixed-term contracts is two (2) years; or

• either the previous contract, or the current contract, provides a right of renewal or extension; or

• the employee has been previously engaged under two consecutive fixed term contracts.

There are two consequences for an employer entering into a fixed term contract in breach of the above new rules:

1. the employer commits an offence against the FW Act, liable to a civil penalty; and

2. the term of the contract that provides the contract and employment ceases at the end of the term is of no effect.

The new laws also contain anti-avoidance provisions that prevent employers from trying to circumnavigate these prohibitions. For example, it will be unlawful for employers to terminate the employee, delay re-engaging an employee, to engage another person to perform the same or substantially similar work or to change the nature of the work performed. 

Employers are also required to provide new employees with a prescribed Fixed Term Contract Information Statement. Failure to do so is also unlawful and subject to civil penalties.

Are there exceptions?

Yes, there are several exceptions to the new restrictions, though they are very specific and narrow in scope. Some of the most notable are where the employee is engaged:

• as a casual;

• to perform only a distinct and identifiable task involving specialised skills;

• in relation to a training arrangement (for example, to undertake an apprenticeship);

• to do essential work during a peak period (for example, seasonal labour);

• to undertake work during emergency circumstances;

• during the temporary absence of another employee (for example, parental leave);

• with earnings over the high-income threshold (presently, $162,000);

• in connection with a position funded in whole or part by government funding; or

• under governance rules of a corporation or other association, where those rules specify the length of time that the appointment can be in place.

While there are other exceptions, the general gist is that the prohibition is largely directed at preventing employers from using fixed-term contracts as a means of managing the workforce other than in these narrow circumstances. The preference is for permanent and secure employment. Fixed-term contracts are reserved for either short-term arrangements, or for very senior employees and those earning a substantial income.

Why does it matter? 

Employers found to be in breach of these news laws will face civil penalties. If the breach is deemed to be a “serious contravention”, then the maximum penalty is dramatically increased.

Not only that, but if the contract is found in breach of these laws, then the fixed-term period of that contract is considered invalid and unenforceable. In other words, the contract remains enforceable beyond the fixed term and employees are able to use the contract to inform the terms and conditions of their employment (even after the unlawful fixed-term period expired). 

What should employers do to get ready for these changes?

The Federal Government has announced that the laws relating to fixed-term contracts will commence in 12 months’ time from Royal Assent.

To prepare for the coming changes, employers should:

• review their current employment contracts and workforce management practices, and identify any cohorts of employee that are currently or routinely engaged on fixed-term arrangements (and consider whether this can or should continue in the future);

• seek legal advice as to whether any of their current employment arrangements will be affected by these changes or if any exceptions apply, and what steps may need to be taken to avoid future uncertainty, liability and penalties;

• develop human resource policies and practices to ensure that the use of fixed-term contracting is undertaken in a lawful manner, including establishing the means to monitor the length of fixed-term arrangements and appropriate plans for when those contracts are set to expire; and

• ensure employees are provided with the Fixed Term Contract Information Statement before or as soon as practicable after entering any fixed term contract.

Authors: Sylvia Moses & Joshua Handley

Contributing Partner: James Mattson