By Kelly Godfrey

Under changes to the Fair Work Act 2009 (Cth) (FW Act) from 6 December 2023, the use of fixed-term and maximum-term employment contracts will be severely limited.

Any fixed-term or maximum-term contract with an outer limit exceeding 2 years will have no effect. This includes rolling fixed-term or maximum-term contracts, or those with an option to renew. All must not exceed 2 years. Even contracts with a gap with substantial continuity where the employee performs the same or substantially similar work will be included.

Any new fixed-term or maximum-term contracts that are entered into on or after 6 December 2023 will need to factor in any such previous contracts and count them towards the 2-year limitation.

While the maximum-term clause won’t be effective, the rest of the contract will continue to operate but as an ongoing permanent employment contract.

Exceptions

Fixed-term and maximum-term employment contracts exceeding 2 years will be permitted where the employee:

• is a trainee or apprentice;
• will receive more than the high-income threshold for the duration of the contract, which can be prorated for part-time and short-term employees;
• will perform only a specific or discrete task involving specialist skills for a fixed period;
• will be temporarily replacing an employee on long leave;
• will perform a time-limited governance position under a company’s governing rules;
• is employed to perform essential work during a peak demand period, e.g. during an emergency or harvesting time; or
• is permitted to be employed in this way by an applicable modern award.

The employer must discharge the onus of proving such an exception exists. All employers that engage an employee under fixed-term or maximum-term contracts will need to provide those employees with a Fixed Term Contract Information Statement, which will be developed by the Fair Work Ombudsman.

Consequences of the changes

Some of the consequences of these changes include:

• workers employed on projects that will take longer than 2 years becoming permanent staff, and entitled to service-based entitlements, such as severance pay when their employment concludes;
• possible reasonable notice claims on termination of employment, in the absence of notice provisions having been included in fixed-term and maximum-term contracts that exceed the 2-year limit;
• possible prosecution and civil penalties for any breach, including for accessory liability;
• the inability under these changes to attempt to circumvent the law by:
• altering the employee’s employment;
• changing the work that the employee performs;
• engaging another employee under another fixed-term or maximum-term contract to perform the same or substantially the same work, rather than continuing to employ the same employee; and
• ceasing to employ or delaying the re-engagement of an employee for a period of time; and
• the ability to refer a dispute to the Fair Work Commission.