F4 - Fixed-Term Contracts

Fixed-Term Contract Employees in Australia

Introduction

Fixed-term contract employees play a crucial role in Australian workplaces, providing businesses with flexibility while offering employees structured employment conditions. However, these contracts are subject to specific legal requirements under the Fair Work Act 2009 and must be carefully managed to ensure compliance with employment laws and regulations.

Understand what employers need to do to manage fixed-term contracts within the law.

What is a Fixed-Term Contract?

A fixed-term contract is an employment agreement that specifies a definite period of employment, with a predetermined end date or completion of a specific project. Unlike casual or permanent employees, fixed-term employees are engaged for a set timeframe, typically covering seasonal work, project-based assignments, or temporary staff replacement.

These arrangements can give employers both certainty and flexibility. A fixed-term contract will usually expire automatically, at the end of the term or project, without the need for notice (although some fixed-term contracts also provide for early termination on notice before the expiry of the fixed term). Fixed-term arrangements are particularly useful for absence cover, to meet increased short-term business demands or for the completion of a specific project.

Key Legal Considerations

Fair Work Act 2009 Amendments

As of 6 December 2023, amendments to the Fair Work Act 2009 impose restrictions on the use of fixed-term contracts. The key provisions include:

• Fixed-term contracts cannot exceed two consecutive contracts or a total duration of two years (whichever is shorter).
• Renewals or extensions beyond the legal limit may lead to the employee being deemed a permanent employee.
• Employers must provide a Fixed-Term Contract Information Statement (FTCIS) to employees, outlining their rights and obligations.

Exemptions

Certain circumstances allow for longer fixed-term contracts, including:

• High-income earners (earning above the Fair Work High-Income Threshold)
• Specialised or training positions, such as apprenticeships
• Government-funded contracts exceeding two years
• Contracts for essential peak-period or temporary replacement roles

Rights and Entitlements of Fixed-Term Employees

Fixed-term employees are generally entitled to the same conditions as permanent employees, including:

• National Employment Standards (NES) entitlements (e.g., annual leave, sick leave)
• Award or enterprise agreement conditions (if applicable)
• Redundancy pay, unless the contract clearly specifies that employment will end at the agreed date
• Unfair dismissal protections, if terminated before the agreed end date without valid reason

Risks of Misusing Fixed-Term Contracts

Misuse of fixed-term contracts can lead to legal risks, including:

• Unfair dismissal claims if termination occurs outside the agreed terms
• Breach of the Fair Work Act for contract rollovers beyond the two-year limit
• Risk of permanent employment classification, leading to backdated entitlements

Best Practices for Employers

To ensure compliance and avoid legal disputes, employers should:

• Clearly define contract terms and include lawful termination provisions
• Avoid excessive contract renewals, ensuring compliance with the two-year limit
• Provide written contracts outlining role expectations, entitlements, and renewal terms
• Monitor changes in employment law, particularly updates from Fair Work Australia

Do fixed-term employees accrue the same benefits as a permanent employee?

Fixed-term employees have most of the same rights as permanent employees such as leave entitlements and Award allowances. Like every other employee, they are entitled to the 10 minimum entitlements that make up the National Employment Standards. These benefits, or entitlements, include for permanent and fixed-term employees’ things like paid annual leave, public holidays, and the right to request a flexible working arrangement in certain circumstances.

The biggest difference from permanent employees regards the fixed-term, as opposed to ongoing, nature of employment. The contract for a fixed-term employee states directly when the term of employment will end. Fixed-term employees are often engaged to cover for an absent employee (e.g. as maternity leave cover), to fill a human resources gap, or staff a big project. Typically, fixed-term contracts will run anywhere from a few months to a year, however, can also be as long as a few years.

How many times can you renew a fixed-term contract?

The Fair Work Act 2009 impose restrictions on the use of fixed-term contracts. The key provisions include:

• Fixed-term contracts cannot exceed two consecutive contracts or a total duration of two years (whichever is shorter).
• Renewals or extensions beyond the legal limit may lead to the employee being deemed a permanent employee.
• Employers must provide a Fixed-Term Contract Information Statement (FTCIS) to employees, outlining their rights and obligations.

Are fixed-term contract employees entitled to annual leave?

A fixed-term contract employee is entitled to annual leave, accrued at the same rate as an equivalent part- or full-time employee.

Difference between fixed-term contracts and permanent contracts

The critical difference between fixed-term contracts and permanent contracts relates to how you can terminate employees. Under a permanent contract, you or the employee must provide notice upon termination. Under a fixed or maximum-term contract, the employment will end without either needing to give notice to the other. The employee could simply not turn up to work after the end date. You may want to remind the employee that they will be finishing up shortly, but you are not required to do so.

What is a maximum term contract?

The difference between a fixed-term contract and a maximum-term contract also relates to requirements surrounding termination. During the term of a maximum-term contract, both you or your employee can terminate the employment after providing notice.

However, during the term of a fixed-term contract, neither party can terminate the employment earlier than the specified time period unless the contract specifically states it is possible. Here, if you ended the employment, the employee may be entitled to the wages they would have earned for the full period of their employment. But, if your employee leaves their job, you can claim compensation from them.

How long are the probation periods?

In regular permanent employment contracts, a probation period is a time where both you and the employee can assess the success of the new working relationship. It generally gives both parties the right to terminate the employment with less notice than is required after the probation period.

For example, you can terminate your employee’s contract with one week’s notice during a six month probation period, and with four weeks notice after the probation period.

You are less likely to need a probation period within fixed-term and maximum-term contracts, especially where the length of the employment is relatively short. Here, you will have less time to adequately assess an employee’s performance, so a probation period might not be necessary.

Conclusion

Fixed-term contracts remain a valuable employment option for Australian businesses. However, with recent legislative changes, employers must exercise caution in their use. By understanding legal obligations and implementing best practices, businesses can effectively manage fixed-term employees while remaining compliant with Australian employment laws.