Compliance Matters: Understanding Changes to Fixed-Term Employment Contracts in Australia – Contract of Employment

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From December 6, 2023, new rules are in effect that affect the use of fixed-term employment contracts. These are the last changes that will go into effect as part of it Amendment to the Fair Work (Secure Jobs Better Pay) Act 2022, which was approved on 2 December 2022

This article will discuss three key limitations of fixed-term contracts, the exceptions to these limitations, and the potential consequences of non-compliance.

New restrictions on fixed-term contracts

There are 3 new restrictions on fixed-term contracts: time restrictions, extension restrictions, and consecutive contract restrictions.

These changes only applies to contracts concluded after December 6, 2023.

Time constraints

Under the new rules, fixed-term contracts in Australia cannot exceed a period of two years, including extensions and renewals.

This means that regardless of the length of the original contract, when considering all extensions and renewals, the cumulative period of employment cannot exceed two years.

Limitation on recovery

Employers will also be prohibited from offering fixed-term contracts with the possibility of extending or renewing the employment contract, if such an extension would lead to the duration of the employment relationship, including the period of extension or renewal, longer than two years, or if the contract contains the right to renew more than once.

Subsequent contractual restrictions

The rules also impose restrictions on consecutive fixed-term contracts. Employee can not hire an employee on a new fixed-term contract if:

  1. The new contract mainly covers the same work as the previous fixed-term contract;

  2. There is no substantial break in the employment relationship between the previous and the new contract; and

  3. Any of the following conditions apply:

    • The total employment period for the previous contract and the new fixed-term contract exceeds two years;

    • A new fixed-term contract can be renewed or extended;

    • iii. The previous fixed-term contract was extended; gold

    • The original fixed-term contract (prior to the previous contract) was concluded primarily for the same work, and there was continuity of employment between the original and the previous contract.

Exceptions

There are exceptions to the new rules, including contracts:

  1. Requirement of specialized skills;

  2. Related to training;

  3. To carry out necessary work during peak periods;

  4. In extraordinary circumstances or temporary replacement of an employee;

  5. For individuals who earn more than the high-income threshold;

  6. Funded by the government for more than two years, with funding unlikely to be renewed;

  7. Involvement in management positions with a limited time frame based on the rules of corporations or associations; and

  8. Where the award includes employment and allows for various fixed-term contract options.

Consequences of non-compliance

It is important that employers are aware of their obligations under these changes. The changes will come into force after a one-year adaptation period to help employers with this transition.

If the employer violates the fixed-term contract restrictions, civil penalties may be imposed.

There is also the risk that an invalid fixed-term contract may be treated as a continuing contract, exposing employers to the legal risks of a misclassified employment relationship, such as the duty to secure continued employment and the associated rights that come with a permanent employment relationship.

Employers must also take care to ensure that they do not fall foul of the provisions of the Tax Avoidance Act, which includes measures to limit attempts to circumvent the restrictions on fixed-term contracts. Such provisions prohibit: terminating an employee’s employment for a fixed period of time, deliberately delaying the re-hiring of the employee, hiring another person to perform the same or substantially similar tasks, and changing the nature of the work or tasks to prevent the conclusion of a fixed-term contract. contractual restrictions.

Information about a fixed-term contract

Employers are also required to provide employees entering into new fixed-term contracts with a “Fixed-Term Contract Information Statement”. This document will help employees understand the terms and limitations of their fixed-term employment and ensure transparency of employment.

By understanding and complying with these changes and exceptions, employers mitigate their legal risks. It is advisable to ask for advice from an employment lawyer if you are unsure about these changes or require advice on implementing measures to address them.

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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