Changes to Fixed Term Contracts

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Significant changes to fixed-term contracts came into effect on 6 December 2023 under the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022. Any employers that engage employees on fixed-term contracts need to be aware of the new requirements around contract terms and extension periods to avoid potential penalties.

The first major change is the requirement for employers to give new fixed-term employees a specific Fixed Term Contract Information Statement (FTCIS). This is an additional obligation to the existing requirement to provide all new employees with the Fair Work Information Statement.

The second key change is the limitations that now apply to fixed-term engagements. New fixed-term contracts made on or after 6 December 2023 must be no longer than two years. This maximum allowable period includes any extensions or renewals. There are also limitations on how a fixed-term contract can be extended. A fixed term contract cannot be renewed or extended more than once, and also a renewal or extension cannot push the combined maximum total to be more than two years.

Employers need to also be mindful not to take any actions to purposely bypass the new legislative requirements as these actions may be deemed to be adverse action. Fair Work refer to these actions as anti-avoidance protections and includes:

  • ending employment or not re-employing the employee for a period of time;
  • not re-engaging the employee and employing someone else to do the same or substantially similar work instead; or
  • changing the type of work or tasks that an employee does or changing the employment relationship.

What happens if I have an employee on a fixed-term contract that came into effect before 6 December 2023?

The contract limitations do not apply to fixed-term contracts entered into before 6 December 2023. However, if you are planning on offering an existing employee an extension to their current fixed-term contract after 6 December 2023, you will be required to comply with the changes. For example, if you had an employee that was about to finish working an 18-month contract and you wanted to extend, under the new laws, you would only be able to offer a six-month extension (to comply with two-year maximum period).

Are there any exceptions?

There are some exceptions to the abovementioned limitations, these include the following:

  • Positions requiring specialised skills for a specific task such as a specific skilled position required for an IT project;
  • Training based arrangements including apprenticeships which are typically four years duration;
  • Positions required for essential work;
  • Emergency or temporary circumstances;
  • High income employees where the employees guaranteed earnings are more than the high income threshold;
  • Positions subject to government funding;
  • A contract for a governance position that is for a limited time (based on the rules of the corporation or association); or
  • An industrial instrument such as an award allows for additional timeframes and/or extensions.

There are also some specific exceptions to organised sport, live performances, higher education and positions funded by philanthropic entities or testamentary gift or contribution.

Secrets are out, transparency is in

This is a reminder to look at your employment contracts to ensure that they are compliant with the Pay Secrecy legislation that came into effect on 7 December 2022.

From 7 June 2023, pay secrecy terms could no longer be included in employment contracts at all, including those contracts agreed to before 7 December 2022.

Under the Pay Secrecy legislation, employees have a legal right to share (or not share) information regarding their employment terms and conditions. In receiving this entitlement, employees were also granted protection from any adverse action as a result of exercising this right.

The changes to pay secrecy laws are another positive step towards pay transparency which is key to eliminating pay discrimination and wage inequality in workplaces.

It is important to review your employment contracts to ensure that there are no pay secrecy terms included that may place your organisation at risk such as any clauses that demand that the terms of employment are ‘confidential’. Failure to make the required changes may leave employers exposed to significant penalties.

If you need assistance with your employment contracts, or further clarification on the new laws, speak to a HR Consultant at Preston HR today.