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Limitations on Fixed Term Contracts effective 6 December 2023.  Is your business prepared?

Limitations on Fixed Term Contracts effective 6 December 2023. Is your business prepared?

Published: 22 Nov 2023

Limitations on Fixed Term Contracts effective 6 December 2023.  Is your business prepared?
Written by
Luis Izzo
Luis Izzo
Managing Director - Sydney Workplace

Limitations on Fixed Term Contracts effective 6 December 2023. Is your business prepared?

Published: 22 Nov 2023

 

From 6 December 2023, the rules (or limitations) on the usage of fixed term contracts arising out of the Pay Equity and Secure Jobs Bill come into effect.

The new limitations

The engagement of an individual on a fixed term contract after 6 December 2023 will subject to:  

  • The fixed term contract period being no more than two years
  • A prohibition on successive fixed term contracts being entered into where the total duration of the successive engagements extends for more than two years
  • An employee not being engaged on either:
    • three consecutive contracts for the same or similar work; or
    • a second fixed term contract which follows on from a previous contract that had already been extended or renewed or where the second contract contains an option for renewal or extension. 
However, there are exceptions to the new limitations. These include:
  • employees engaged to perform only a distinct and identifiable task involving specialised skills
  • employees engaged by way of a training arrangement
  • employees engaged to undertake essential work during a peak demand period
  • employees engaged to undertake work during emergency circumstances
  • employees who earn more than the high-income threshold for the year that employee enters into the contract
  • employees engaged in a governance role which is prescribed a time limit under the governing rules of a corporation or association of persons
  • the contract is wholly or partly funded by government funding (or a type of funding allowed by the regulations) and the funding is for a period of more than two years and there are no reasonable prospects that the funding will be renewed after that period
  • a modern award covering the employee permits them to be employed for more than two years under a fixed term contract, a renewable contract and/or a consecutive contract
  • the contract is a kind prescribed by the regulations.

The Regulations

On 23 November 2023, the Minister for Employment and Workplace Relations published the Fair Work Amendment (Fixed Term Contracts) Regulations 2023.   
 
Calculating the high-income threshold for the exception
 
For employees who are part-time or those work less than a full year, to determine whether an employee earns more than the high-income threshold for the year, the following method is to be used:

  • the number of hours under the fixed term contract that the employee is required to work for that year by reference to the number of working days in that calendar year;
  • divide that number by the number of hours that a full-time employee (as outlined in the Regulations works for that year by reference to the number of working days in that calendar year (rounding to 3 decimal places); and
  • multiple the result by the high-income threshold for the financial year in which the contract was entered into.
Put simply, an employer will need to:
  • work out the number of hours that employee is required to work for the year;
  • divide that number by the number of hours the full-time comparable employee would work in the year - this establishes what the full-time equivalent is; and
  • multiple the full-time equivalent by the high-income threshold.
Importantly, this calculation does not impact whether the employee earns more than the high income threshold for the purpose of determining whether they have access to Unfair Dismissal rights.
 
Contracts to which the limitations do not apply
 
The amendment to the regulations introduces further exceptions to which the limitations do not apply. These are:
 
Organised Sports Contracts between an employer and an employee, where the employee is employed to primarily perform in an organised sport as either an athlete, coach for an athlete, match official, or a performance support professional who directly works to support or assess an athlete or match official participating in an organised sport. The kinds of organised sports covered are outlined in the Regulation.
High Performance Sport - International event organising bodies Contracts between an employer and an employee, where the employee is employed to directly support the administration or organisation of an international event for a high-performance sport such as the Olympics.
 
This excludes contracts between an employer and an employee for international events that are regularly held in Australia such as the Australian Open or Formula1.
Live Performance Industry Contracts between an employer and an employee, where the employee is covered by the Live Performance
Award 2020.
 
The fixed term of the contract must not be greater than 12 months.
Higher Education Employees Contracts between an employer and an employee, where the employee is covered by the Higher Education Industry – Academic Staff – Award 2020, or the Higher Education Industry – General Staff – Award 2020.
Non-Government funded - Philanthropic entities Positions for the performance of work that is funded by a philanthropic entity registered under the Australian Charities and Not-for-Profits Commission Act 2012. Including when the position is funded by a testamentary gift or contribution to a philanthropic entity for a charitable purpose of that entity.
 
This includes, when a role is funded in whole or in part by philanthropic funding from a registered charitable entity.
 
This exception does not apply to positions for the performance of work where philanthropic funding is received by charities from noncharitable entities.


The current exceptions in the Regulations only apply to fixed term contracts entered into after 6 December 2023 and before 1 July 2024
 

Fixed Term Contract Information Statement

In addition to issuing new employees with the Fair Work Information Statement, when hiring employees on a fixed term basis, employers will also need to provide them with the Fixed Term Contract (FTC) Information Statement before they start or as soon as possible after commencing employment.  This will not be available until 6 December 2023.
 

Disputes

In addition to the new limitations, there are new powers for handling disputes regarding fixed term contracts.
 
The Fair Work Commission will be able to hear disputes about a fixed term contract, either the employee or employer can apply.
 
The Fair Work Ombudsman may also commence court proceedings against employers who breach the new provisions.
 

Transitional Arrangements

The new fixed term contract limitations will only apply to contracts that are entered into after 6 December 2023, unless a successive contract is entered into.
 
For example, a new fixed term contract for a three year period can be entered into on 5 December 2023 and this will not fall foul of the new provisions.
 
However, if a contract was entered into for a year preceding 6 December 2023, then the Court will have regard to this existing contract when any subsequent/successive contract is entered into after 6 December 2023.


What does this mean for employers?

If you have employees on fixed term contracts and you have not yet reviewed them, we strongly recommend that you review these arrangements now to ensure compliance with these new limitations. 
 
For a more in-depth look into the limitations on fixed term contract arrangements, ABLA has published a guide to the IR reforms.
 
If you need guidance on your fixed term contracts, please get in touch with one of our workplace lawyers at info@ablawyers.com.au.

                                                      

Related resources

The content of this article is general in nature, and is intended to provide commentary only. It does not constitute advice, and should not be relied upon as legal advice. Targeted formal legal advice should be obtained prior to any action being taken in relation to a matter arising in response to the content of this article.

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