Fixed Term Employment Contracts: What you need to know!

Fixed-term employment contracts are employment arrangements that specify a defined period of employment.  This means an employee engaged under a fixed-term contract will only work until the end date set out in their contract.  Fixed-term contracts have long been used by employers to ensure flexibility in meeting their operational needs.

Definition and purpose of fixed-term contracts

A fixed-term contract is an employment agreement that stipulates an end date. These contracts are often used for seasonal work, projects with a defined timeline, or to cover employees on leave. They can be beneficial for both parties; employers can manage staffing levels efficiently, and employees can gain valuable experience and skills whilst receiving a degree of job security (and employee entitlements) their casually employed counterparts do not.

However, in an attempt to provide better job security, changes to the Fair Work Act 2009 (“the Act”) have restricted the duration of fixed-term contracts.  Most importantly, as of 1 December 2023, fixed-term contracts have been limited to a duration of two years.

New restrictions for fixed-term contracts

Pursuant to s. 333E of the Act, fixed-term contracts:

• Cannot last longer than two years;
• Cannot circumvent the prescribed limitations by offering successive fixed-term contracts (for substantially the same work); and
• Are prohibited from including an option to extend or renew more than once, or an option that would result in the fixed-term employment term exceeding two years.

An employer must also provide an employee with the Fair Work Commission’s Fixed Term Contract Information Statement at the commencement of a fixed-term contract.

Exceptions to fixed-term contract limitations

Notwithstanding the need for better job security, it is recognised that particular enterprises or employment arrangements require flexibility.  As such, the Act prescribes a number of exceptions to the fixed-term contract rules, including contracts for employees who are:

• Engaged to perform a distinct task, requiring specialised skills;
• Involved in training arrangements;
• Required for essential work during peak demand periods, such as a ski-lift operator during ski-season;
• Working under emergency conditions or to cover the temporary absence of another employee;
• Earning above the high-income threshold (currently $175,000.00);
• Hired for government-funded positions;
• In governance roles with time limits as stipulated by governing rules; and
• Covered by a modern award that allows fixed term contracts exceeding two years (for example, the Higher Education Industry – Academic Staff – Award 2020).

What if a fixed-term contract does not comply with the limitations?

If a fixed-term contract offends s. 333E of the Act, the offending term is taken to have no effect.  For example, where a fixed-term contract includes a term that the employment relationship will end after three years, s. 333G(1)(a) of the Act will operate to remove that term from the employment contract, meaning there will be no end date (i.e. the employment relationship will continue, indefinitely).  If a fixed-term contract offends s. 333E and the employment relationship terminates in accordance with the fixed-term contract (i.e. on the end date), an affected employee may have a claim for redundancy or other termination entitlements (such as bringing an unfair dismissal claim).

I need help!

If you have any questions about fixed-term contracts, or employment matters generally, contact one of our experienced, local team members today on (07) 4963 2000 or via the contact form below.