Reform likely to limit rolling fixed-term contracts

Luis Izzo is Managing Director Sydney Workplace and Maria Mamblona is Associate - Australian Business Lawyers & Advisors.

One of the focuses of the recent Jobs and Skills Summit was boosting job security and wages.

The Issues Paper prepared by Treasury arising from the summit identified that alongside labour hire, casual and gig economy work, fixed term employment arrangements are being viewed as a matter that negatively impacts on job security and wages.

Both the ALP election campaign policy on job security and the Issues Paper propose to limit the use of fixed term arrangements.

What are the concerns around fixed term engagements?

The ACTU has expressed concern about fixed term contracts being improperly used to extend the probationary period for employees. That is, there is concern that these contracts are being used to extend an employee’s ‘trial period’ from the usual 6 months to anywhere between 12, 18 and 24 months.

Where fixed term contracts are renewed, the argument also arises that these engagements have simply compounded the prevalence of insecure work and contribute to weaker wage growth - due to the less substantive bargaining power of the more insecure worker.

The legitimate role fixed term contracts still play

While many instruments can sometimes be susceptible to misuse, there does remain a legitimate role for fixed term contracting in a variety of operations.

Numerous organisations rely on fixed term contracts due to legitimate funding and operations constraints that do not enable them to engage a worker for longer periods. Some simple examples include:

• medical research organisations (where fixed term contracts are linked to funding grants);
• engagements for medical research or patient studies (which are of limited duration);
• charitable organisations (where fixed term contracts are linked to funding grants);
• horticultural businesses (where fixed term contracts are linked to specific seasons - possibly over a number of consecutive years);
• contracts that are fixed to align with commercial contracts a business may have. By having an ability to employ people on fixed terms that align with commercial contract arrangements, businesses can employ with confidence, increasing the likelihood of greater employment in a particular business; and
• businesses in areas with highly seasonal demand (where fixed term contracts are linked to specific seasons - possibly over a number of consecutive years).

The use of fixed term contracts in these scenarios can often further genuine and productive outcomes and is likely preferable to the alternative - casual employment.

Likely reforms

Notwithstanding the competing views in this space, reform of some nature seems inevitable based upon the ALP’s own election campaign which promised reform in this area.

It is most likely that the Government may introduce legislation limiting the number of consecutive fixed term contracts that an employer can offer for the same role. For example, contracts may be limited to 24 months' total duration, subject to some exceptions for specific scenarios that might be negotiated once the reforms are tabled.

What is not clear is how the Government will address the prevalence of maximum term contracts (that is, fixed term contracts that permit either party to terminate early with notice). These contracts do not necessarily attract the same special status as ‘true’ fixed term contracts under the Fair Work Act, (‘true’ fixed term contracts being those which are not able to be terminated prematurely with notice).

In fact, following the Fair Work Commission decision of Khayam v Navitas English Pty Ltd [2017] FWCFB 5162, the question of whether employers can be exposed to unfair dismissal or redundancy liability when they allow maximum term contracts to expire is a matter that will depend largely on the circumstances of each case - as we explained in our alert on the case when it was handed down.

The way in which the Government differentiates between the regulation of true fixed term contracts and maximum term contracts will ultimately be as important as any decision to limit fixed term contracts to a particular period or number of consecutive contracts.

ABLA will continue to update you as details become available.