Changes to fixed-term contracts take effect

Changes to Australia’s rules on fixed contracts are now in effect.

Under the new rules, a fixed term contract can’t be for longer than two years – including any extensions or renewals, noted the Fair Work Ombudsman.

The contracts also can’t have an option to extend or renew the contract so the period of employment lasts for longer than 2 years, or extend or renew the contract more than once.

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, according to the Ombudsman:

1. Their previous contract was also for a fixed term.
2. Their previous contract and the new contract are for mainly 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 or 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.

But there are exclusions to the laws — they won’t cover casual employees, training arrangements or apprenticeships, Trent Hancock, principal at Jewell Hancock Employment Lawyers, previously told HRD Australia.

“It won't cover situations where there's a distinct and identifiable task involving specialised skills,” he said.

“It won't cover essential work during a peak demand period, and it won't apply to employees who are earning above the high-income threshold as well, that currently sits at $167,500 per annum. And it also won’t apply to certain positions that are funded by government funding or governance positions that have a time limit under their governing rules.”

Employees are ‘clear winners from these reforms’

Employees “are the clear winners from these reforms,” Hancock previously told 7NEWS.com.au.

“Regrettably, many employers have been using successive fixed-term contracts to create a new form of insecure work for employees,” he said.

“Even if a role is required on a permanent ongoing basis, employers have been too often engaging workers on fixed-term contracts to facilitate their easy departure or to exert an unfair level of pressure and control during the relationship, including in salary negotiations.

This, he said, is “prevalent” education and the not-for-profit sector.

According to the latest data from the Fair Work Ombudsman, in August 2022, 3.4% of employees, equivalent to 390,000 workers, were employed on a fixed-term contract.

The industries with the highest proportion of employees on a fixed-term contract were:

• education and training (11%)
• information media and telecommunications (8%)
• public administration and safety (7%).

The Australian Higher Education Industrial Association and the Association of Australian Medical Research Institutes had been calling for more exemptions. In a June submission to the federal government, they noted: 

“As it currently stands, implementation of the new workplace laws for fixed-term contracts, under the Act, will have a catastrophic impact on Australia’s health and medical research community. It is crucial to strike a balance between promoting job security and providing flexibility to adapt to the unique challenges faced by our sector.

“By allowing exceptions to limitations on fixed-term contracts, researchers and medical research institutes can better navigate funding uncertainties and continue their vital work for the benefit of all Australians.” 

While fixed-term engagements can be a critical element of your resourcing model, businesses can slip into the trap of becoming over-reliant on it, Sarah Blackman, director and principal lawyer at Decipher Workplace Law in Melbourne, previously said.