Fixed term employment contracts: ‘fixing’ the requirements

In recent times, fixed term (often maximum term) contracts have been a common topic of discussion in the employment law space. This largely stems from significant reforms introduced by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) (Secure Jobs Better Pay Act), which received Royal Assent on 6 December 2022, and introduced new limitations that apply to fixed term contracts from 6 December 2023.

Additionally, fixed term contracts were a key issue in dispute in the recent decision of Kerri Anne Hughes v Alcoa Portland Aluminium Pty Ltd [2024] FWC 37, which considered whether an employee is ‘dismissed’ when their fixed term contract ends.

In this article, we will examine the implemented changes and findings from Hughes v Alcoa, and discuss how employers can incorporate the changes to the Secure Jobs Better Pay Act into their workplace procedures to ensure compliance.

What is a fixed term employment contract?

Fixed term contracts are, generally, contracts of employment with an agreed end date. Similarly, a maximum term contract is a contract with a fixed end date, which may be terminated prior to this end date by the parties.

Both fixed term and maximum term contracts are affected by the changes implemented by the Secure Jobs Better Pay Act, which apply to contracts entered into on or after 6 December 2023.

What are the changes?

The key change to fixed term contracts under the Secure Jobs Better Pay Act is that they must not last longer than two consecutive contracts, or a maximum contract length of two years in duration (whichever is shorter). This includes any extensions or renewals. Additionally, the Secure Jobs Better Pay Act prohibits the contract from being extended more than once.

The Secure Jobs Better Pay Act further stipulates that employers cannot engage an employee on a fixed term contract if:

• the contract is a new contract that is for the same or a substantially similar role as a previous fixed term contract; and
• there is substantial continuity of the employment relationship between the end of the previous fixed term contract and the new contract; and either
• the total period of the contracts is two or more years;
• the new contract can be renewed or extended; or
• a previous contract was extended.

What exceptions apply?

There are some exceptions to the limitations to fixed term contracts as introduced by the Secure Jobs Better Pay Act, including:

• the employee is engaged under the contract to perform only a distinct and identifiable task involving specialised skills
• the employee is engaged under the contract in relation to a training arrangement
• the employee is engaged under the contract to undertake essential work during a peak demand period
• the employee is engaged under the contract to undertake work during emergency circumstances or during a temporary absence of another employee
• the employee earnings under the contract is above the high-income threshold (currently $162,000)
• the contract relates to work that is funded by government funding that is payable for more than two years and there are no reasonable prospects that funding will be renewed
• the contract relates to a governance position that has a time limit under the governing rules of a corporation
• the Modern Award states otherwise
• regulations prescribe otherwise.

When do the changes come into effect?

The changes implemented by the Secure Jobs Better Pay Act apply to contracts entered into on or after 6 December 2023.

However, the Fair Work Amendment (Fixed Term Contracts) Regulations 2023 delay the commencement of these provisions until 1 July 2024 for the following industries:

• organised sport
• high-performance sport
• live performance
• higher education
• non-government funded philanthropic entities.

Why were the changes implemented?

The new provisions have been introduced to prevent employers from continuously rolling over fixed term contracts, in order to provide greater job security for employees. The new rules only apply to permanent employees, not casual employees.

The provisions will both limit an employer’s ability to offer fixed term contracts and will automatically convert fixed term employees to permanent employees in some instances. In particular, where an employer fails to comply with the new provisions, the contract will remain valid bar the end date of the contract. As such, the employee will be treated as a permanent employee with all associated entitlements (such as redundancy, notice of termination and the ability to pursue an unfair dismissal claim).

What happens at the end of the ‘fixed term’? Does this mean the employee is dismissed?

When the fixed term contract comes to an end, the employment is terminated. It is important to note that this is different to being ‘dismissed’ under the Fair Work Act 2009 (Cth) (FWA).

Pursuant to the FWA, a ‘dismissed’ employee is eligible to make an unfair dismissal claim.

The ‘termination’ versus ‘dismissal’ concept in the context of fixed term contracts was recently examined in the case of Hughes v Alcoa. In this case, Ms Hughes (the applicant) argued that Alcoa Portland Aluminium Pty Ltd (the respondent) dismissed her at the end of her fixed term contract and had used this form of contract as a way to circumvent their obligations under unfair dismissal laws. Alcoa had informed Ms Hughes that it would not be renewing her contract at its expiration. Ms Hughes argued that this constituted a dismissal at the initiative of Alcoa as opposed to her employment terminating due to the expiry of the fixed term contract. Ms Hughes further argued that Alcoa intended to dismiss her due to Ms Hughes defending herself against allegations of serious misconduct – which is a workplace right.

Alcoa argued that this was not the case, and that Ms Hughes’ employment had ended simply on a date previously agreed by the parties.

The Commission ultimately found in favour of Alcoa, meaning that Ms Hughes had not been ‘dismissed’. The reasons for the decision included the short employment relationship (approximately 13 months) and the presence of a genuine agreement between the parties for an end date, noting the contract had clearly and expressly stated that it was entered into with a fixed time limit. Additionally, no other warranties of an alternative arrangement applying was provided by Alcoa to Ms Hughes.

Key takeaways for employers

The changes implemented by the Secure Jobs Better Pay Act will have implications for businesses that currently use back-to-back fixed term contracts for employees.

If an employer intends to hire an employee on a fixed term contract, the employer should first check if any of the exceptions apply. If this is not the case, then the employer should consider how long they intend to retain the employee for – if this period exceeds two years, usually a permanent ongoing contract will be required.

From an administrative standpoint, employers should review the terms of any template fixed term contracts and amend to ensure their compliance with the changes. Additionally, employers should arrange educative training for HR staff and managers regarding the new rules.

Employers are also required to give employees they engage on a new fixed term contract a ‘Fixed Term Contract Information Statement’ (FTCIS), to be given as soon as reasonably practicable after the employee’s commencement. The FTCIS is available here.

A failure to provide the FTCIS to employees may give rise to civil penalties.