Changes to Fixed-Term Contracts: Everything You Need to Know

The Federal Government’s Secure Jobs, Better Pay Bill is still rolling out its significant reforms to the Fair Work Act 2009 (Cth) (FW Act). The most recent change came into play on 6 December, changing the rules that apply to the use of fixed-term contracts. Here’s what you need to know.

New Rules in a Nutshell

Fixed-term contract employees are workers hired for a fixed period, usually terminating at the end of this specified timeframe. As of 6th December 2023, new guidelines will be in place to protect the rights of both employers and employees.

Here are the most significant changes:

1. Fixed Term Contract Information Statement (FTCIS): From 6 December 2023, employers must present a Fixed Term Contract Information Statement (FTCIS) to every worker hired under a new fixed-term contract. The FTCIS informs workers about the nature of fixed-term employment, including rules about when fixed-term contracts are permitted.
2. Limitations on Fixed-Term Contracts: Fixed-term contracts may not last longer than two years, inclusive of any extensions or renewals.
3. Renewal Limitations: Employers cannot extend or renew the contract so that the period of employment exceeds two years.

Fixed-Term Contracts and the Individual Situation

It’s important to note that these changes don’t apply to all fixed-term contracts – there are exceptions. For instance, these limitations don’t apply to casual employees.

Moreover, if fixed-term contracts don’t meet these limitations, that does not automatically render them illegal or invalid. Rather, these contracts can only be used for genuine reasons based on the ‘normal and customary turnover of labour’.

The Two-Year Rule

The “2-year rule” is an important aspect of the new guidelines set by the Fair Work Ombudsman. Grounded in the principles of fair and equitable employment, this rule has significant implications for employers and employees alike, particularly in Australia’s vital agriculture and production sectors.

In essence, this rule stipulates that fixed-term contracts may not last longer than two years. This includes any extensions or renewals of the employee’s contract.

The finer details on this mean that:

An employee can’t be offered a new fixed-term contract if the first 3 points below all apply, and one or more of the scenarios in the 4th point applies.

1. Their previous contract was also for a fixed term.
2. Their previous contract and the new contract are mainly for the same work.
3. There is substantial continuity in the employment relationship between the previous and new contracts, and
4. Either:
   • the previous contract contained an option to extend that was used
   • the total period of employment for both the previous and new fixed-term contract is more than 2 years
   • the new fixed-term contract contains an option to renew extend, or
   • there was an initial contract in place (before the previous contract):
   • that was for a fixed term,
   • that was for the same or similar work, and
   • where there was substantial continuity in the employment relationship.

Ultimately, this rule means employers cannot continually extend or renew a contract to make the total period of employment exceed two years.

Exceptions to the Limitations on Fixed-Term Contracts

There are exceptions to the limitations of the new fixed-term contract rules. For instance, they won’t apply to government-funded positions, high-income employees or essential workers. They also don’t apply to casual employees.

For more details on the exceptions to the fixed-contract limitations, see here.

What This Means for Employers

Employers must adapt to these new rules to stay compliant. For instance, it will be critical to consider the new two-year rule when drafting your fixed-term contracts.

Also, starting December 6, 2023, you will need to remember to provide all workers engaged on a new fixed-term contract with a copy of the FTCIS. This should be done at the start of the contract.

These incoming changes will introduce more structure and clarity to fixed-term contracts, providing both employers and employees with a more solid foundation for their working relationships. To remain compliant, employers need to alter their practices accordingly.

The limitations don’t apply to fixed-term contracts entered into before 6 December 2023. However, fixed-term contracts entered into before 6 December must be considered when applying the consecutive contracts limitation for a new fixed-term contract that is entered into on or after 6 December 2023.

For further information, help or advice, please visit Fair Work Ombudsman.