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HR and Fixed Term Contract instructions

It is not uncommon for HR to receive instructions to appoint a new starter employee on a “fixed term” basis.   Moreover, CEOs and other business leaders will often instruct HR to extend or further extend existing fixed term contractual arrangements.  This is often associated with project delays or unexpected changes in operational circumstances such as other staff movements within the team or periods of leave of absence.

New rules regarding fixed term contracts

The use of fixed term contractual arrangements is now subject to a new regime effective 06 December 2023.  With that, if you are used to simply extending an existing fixed/maximum term contract for a further period, then please be sure to pause before pressing go once again. 

What is a fixed term contract?

In simple terms, a fixed term contract is one with a set end date – usually linked to the completion of a specific piece of work, project or season.  

What is the difference between a fixed term contract and a maximum term contract?

A maximum term contract contains a notice of termination provision.  Therefore, even with a specific end date, the contract allows termination with notice.  

The Fixed Term Contract Information Statement

A good place to start is being familiar with the newly drafted Fixed Term Contract Information Statement from the Fair Work Ombudsman.  HR folk would already be familiar with the existing Fair Work Information Statement which is issued to all new staff that sets out minimum terms and conditions of employment.  The Fixed Term Contract Information Statement is a new document that is required to be issued to all new starters on fixed term contractual arrangements.  This document sets out the rules about fixed term contract arrangements including information about when they can be extended, limitations on their use and how to resolve disputes.  It is necessary to issue this document as well as the Fair Work Information Statement.  Therefore, you will need to make sure that in the case of a fixed term employee, you are issuing both the Fair Work Information Statement and the Fixed Term Contract Information Statement.  

2 year rule

A fixed term contract cannot be extended beyond a period of 2 years including any extensions (or renewals).  A good way to remember this is by remembering that the 2 year period is the totality of the permitted duration of any fixed term contract.  A handful of exceptions apply (see below).  

The renewal rule – no more than once

In addition to the 2 year rule, it is also not possible to extend a fixed term contract more than once.  This applies even if doing so more than once means you are still within a total period of 2 years.  Given that only 1 x extension is permitted, it is important to consider fixed term contract duration in advance and to contemplate any possibility or likelihood of extension down the track given that you’ll only be able to do so once.  Consecutive contract limitations can be tricky to navigate – including in situations where there may have been a gap between engagements.  It is therefore best to seek specialist advice to make sure that you are aware of your obligations before proceeding.

What about fixed term contracts that were in place prior to 06 December 2023?

The new fixed term contract provisions do not apply to contracts entered into prior to 06 December 2023.  However, the consecutive contract limitation does need to be considered for any contract extension that may be contemplated after this date.  This means that you could face a situation where the new fixed term contract provisions don’t apply to someone’s initial contract though will apply if that person is engaged on a new fixed term contract.  

Do any exceptions apply?

Yes.  The new fixed term contract provisions will not apply to certain circumstances inclusive of those summarised below:

• Where a position is government funded for a period of more than 2 years and is unlikely to be extended
• Where an employee earns more than the high income threshold (which is a current full time per annum salary of $167 500)
• Where an employee is engaged to complete a specialised task with their specialised skill set
• Where an employee is engaged to perform essential work during a period of peak demand
• Emergency circumstances
• Periods of temporary absence (such as where a substantive position holder extends their period of parental leave absence).

If you are unsure as to whether a situation in your organisation may be caught by any of the exceptions including those noted above, then with our specialist HR guidance and advice we can help you determine the way forward.  

By way of additional information, the Fair Work Ombudsman also provides details on further exceptions including in relation to organised sport, live performance and within the tertiary education sector.  It is important to note that in relation to these additional exceptions, the relevant contract must be entered into after 06 December 2023 and prior to 01 July 2024.   We encourage you to learn more here: https://www.fairwork.gov.au/starting-employment/types-of-employees/fixed-term-contract-employees/additional-fixed-term-contract-exceptions

What can HR do now?

Get on the front foot and make sure that your HR administration is in order to align with this significant change to fixed term contracts:

• Read through the various explanations and worked examples available from the Fair Work Ombudsman (see also our list of resources below)
• Ensure that your People and Culture team are across these changes and equipped to advise their internal customers and client groups
• Review and where necessary, refresh your existing fixed term contract templates before engaging fixed term employees
• Carefully consider the wording in your recruitment advertising campaigns for any fixed term roles
• Determine if any of the exclusions may be applicable.  If unsure, contact us for HR guidance and advice.
• Be sure to issue the Fixed Term Contract Information Statement to new starter employees engaged on a fixed term.  This applies in addition to issuing the Fair Work Information Statement.

Resources

Fixed Term Contract Information Statement:
https://www.fairwork.gov.au/employment-conditions/information-statements/fixed-term-contract-information-statement

Fixed Term Contracts – new rules:  
https://www.fairwork.gov.au/starting-employment/types-of-employees/fixed-term-contract-employees#new-rules-for-fixed-term-contracts

Additional Exceptions:
https://www.fairwork.gov.au/starting-employment/types-of-employees/fixed-term-contract-employees/additional-fixed-term-contract-exceptions

Contact us today and we’ll partner with you in understanding the application of these new fixed term contract rules to your business. You can also read more on this page here.