Australia: New rules limiting the use of fixed-term employment contracts

What’s new?

From 6 December 2023, new rules will be effective that limit the use of fixed-term contracts in Australia.

Employers will no longer be able to employ an employee on a fixed-term contract that:

  • is for a period exceeding 2 years (including any extensions);
  • provides the option or right to renew the contract more than once; or
  • is a new contract that is for the same or a substantially similar role as previous contracts and certain circumstances apply – such as the total period of the new contract and previous contract exceeds 2 years, or the current contract contains an option for renewal or extension.

Employers cannot deliberately avoid the new rules, such as by delaying re-engaging an employee for a period or changing the nature of the work or tasks the employee is required to perform.

Employers will also need to give employees a Fixed-Term Contract Information Statement, which will be made available from the Fair Work Ombudsman.

Are there any exceptions to the rules?

Yes,  some exceptions to the rules will apply, including (amongst others) if the employee:

  • is engaged as part of a training arrangement;
  • is covered by a modern award that permits any of the circumstances mentioned above;
  • earns over the high-income threshold for the first year of the contract; or
  • is engaged to undertake essential work during a peak demand period.

What are the consequences for breach of the new rules?

If an employer enters into a fixed-term contract which contravenes the rules, then the employee will become a permanent employee (given the term of the fixed-term contract will have no effect). The employee would then be entitled to all the rights and entitlements of any other permanent employee (e.g. redundancy and termination provisions). Employers failing to comply with the new obligations may also be required to pay penalties.

What should employers do now?

Employers should:

  • start reviewing their current utilisation of fixed-term employees. Note that any contracts entered into before 6 December 2023 will be relevant in determining if a prohibited contract is subsequently entered into once the new rules come into effect;
  • identify any relevant exceptions that might apply to your organisation and consider implementing onboarding guidelines for HR, setting out when fixed-term contracts can be offered, when they expire etc.; and
  • update template contracts to amend fixed-term clauses to comply with the new rules.

Please get in touch with the MDR ONE team if you have any questions on the new rules or require any support.

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