New limitations for Fixed-term Contracts
Effective 6 December 2023:
December 2023 is an important month for employers as there are some important legislative deadlines to be aware of, especially if your business employs workers on fixed-term contracts.
Key take outs
- Employers should ensure they are familiar with the changes to fixed term contract legislation and review their use of fixed term contracts in their business.
- It is important to ensure compliance with the new requirements and to provide adequate protections to employees who are on fixed term contracts.
- After the changes come into effect, fixed term contracts will generally not be able to last for more than 2 years. There will be some exceptions to this rule.
- Employees who have been on a fixed term contract for four or more years will be entitled to a permanent contract, unless there is a legitimate business reason not to offer one.
- Employers will need to be careful when using fixed term contracts for long-term staffing needs.
- Employers will be required to provide a Fixed Term Contract Information Statement (“the FTCIS”) to any employees engaged on a Fixed-Term Contract from 6 December 2023.
What is a Fixed-term contract?
A fixed-term employment contract is a contract where the employee is employed for a specific period of time (for example, over a 2-year term) either on a full-time or part-time basis. Examples of fixed-term employment contracts include:
- Seasonal work: An employee is hired to cover a specific season, such as summer or winter.
- Project-based work: An employee is hired to complete a specific project or task, such as a construction project or a marketing campaign.
- Replacement of an employee on leave: An employee is hired to cover another employee who is on a leave of absence or extended maternity leave.
- Apprenticeships or internships: These are typically fixed-term contracts that provide training and work experience to a new employee.
- Temporary staffing: Companies may hire temporary staff for a fixed term to cover a short-term increase in workload or to fill in for an absent employee.
There was previously no limitation on the length of the fixed term or the number of times you could extend it. As such, it was possible to have a fixed-term contract for as long as the employer wished or for fixed-term contracts to be renewed indefinitely instead of offering the employee more permanent employment.
What happens on 6 December 2023?
As a result of the Secure Jobs and Better Pay legislation, new limitations will apply as summarised below:
- Time Limitations: A fixed-term contract cannot have a term exceeding 2 years. The 2-year term is inclusive of any extension or subsequent renewals.
- Renewable Contract Limitations: A fixed-term contract cannot be extended or renewed more than once, even if the total term inclusive of the renewal/ extension will be less than 2 years.
- Consecutive Contract Limitations: A new fixed-term contract cannot be offered to an employee for work that is similar to the work performed under the previous fixed-term contract unless there has been a substantial break in the employment relationship between the employer and employee.
The section of “The new legislation does introduce some exceptions to the above limitations. In the following instances, the above limitations can be waived:”
- Specialised Skill: The employee is engaged to perform tasks involving specialised skills.
- Training Arrangement: The employee is engaged under a training arrangement, such as a traineeship or apprenticeship.
- Essential Work: The employee is engaged to undertake essential work during a peak demand period.
- Emergency Circumstances/Temporary Absence: The employee is engaged due to emergency circumstances or a temporary absence of another employee.
- High-Income Employees: The employee’s salary exceeds the high-income threshold.
- Government Funded Contracts: The employee is performing work that is partially or fully funded by the government for more than 2 years and will be unlikely to be renewed beyond the end of that period.
- Governance Positions: The contract relates to a governance position that has a time limit under the governing rules of a corporation/association. An example of this may be a fixed-term contract for the position of a board member of a charity.
In addition to the above, employers will also be required to provide a Fixed Term Contract Information Statement (“the FTCIS”) to any employee engaged on a Fixed-Term Contract from 6 December 2023.
What happens if I breach the new limitations?
If there is a breach, the termination date of the fixed-term contract will no longer apply. All other terms of the contract (such as wages, entitlements etc) will still apply, which might have the effect of converting the employee’s employment into permanent full-time or part-time employment.
There may also be some financial burden attached to non-compliance if the fixed-term contract did not contain notice provisions or if civil penalties are applied for breaching the Fair Work Act 2009 (“the Act”) (whether it is due to a non-compliant contract or a failure to provide the FTCIS).
What do I need to do?
As an employer you will need to consider the following to prepare for the new limitations:
- Familiarise yourself with the new limitations above and consider if/how these changes impact your business. The new limitations may be especially relevant to existing fixed-term contract employees who are coming to the end of their fixed-term contract.
- Consider if any of the above exceptions apply to your business if you are intending to hire an employee under a fixed-term contract.
- Ensure that the FTCIS is provided to any employee commencing a fixed-term contract after 6 December 2023. The FTCIS will be available on the Fair Work Ombudsman website from 6 December 2023 and must be provided to employees in addition to the Fair Work Information Statement that is generally provided to employees.
If you need assistance with reviewing, editing and updating your fixed-term contracts to ensure compliance with the new changes, please contact our Workplace Relations Team at firstname.lastname@example.org or via our Contact Us page.
Please note that this article is not intended to provide legal advice, but rather constitutes general guidance on upcoming changes in the rules. For more information or if you are seeking legal advice, you may wish to contact our Workplace Relations lawyers to assist you further.