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Limiting the use of “Fixed Term” Contracts – Legislative changes to commence no later than 6 December 2023. Part 1 of 2

Published on May 8, 2023 by Peter Punch

Introduction

As remarked upon in a recent article on the massive changes to Australian workplace relations law made by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) (“the SJBP Act”), the SJBP Act inserted a number of new provisions into the Fair Work Act 2009 (“FW Act”) limiting the use of so called “fixed term contracts”.

The central provisions inserted into the FW Act are Sections 333E to 333H, forming Sub Division A in a new Division 5 of Part 2-9 of the FW Act. However there are a number of ancillary or supporting provisions, including transitional ones, that also require consideration.

This article, which is in two parts, discusses these legislative reforms to what is a complex and somewhat controversial aspect of Australian workplace law. In this first part, the purpose of these reforms are examined, and their effect summarised. The second part, which will be published closer to the time that the reforms will commence (i.e no later than 6 December 2023), will discuss the various exemptions and transitional provisions that affect the actual reach of the reforms.

Purpose of reforms

The purpose of the new Division is to limit the ability of employers to use fixed term contracts for the same role beyond two years or two consecutive contracts, whichever is shorter, including renewals.

The “mischief” that the new Division is intended to eradicate or curtail was summarised by the Minister, Tony Burke in his Second Reading Speech upon the introduction of the Bill:

“Job Security has many faces. We see it in the gig economy, labour hire, new forms of insecurity for part time employees, and rolling fixed term contracts which effectively amount to a permanent probation for employees [emphasis added].

…

The number of workers on fixed term contracts has increased by over 50% since 1998. More than half of all employees engaged on fixed term contracts are women; and more than 40% of fixed term employees have been with their employer for two or more years.”

There is no doubt that these types of contracts have their legitimate uses for some situations (e.g. a contract tied to a period of government funding for the position in question, or a contract tied to a job that has a definite life, such as that of a project). Moreover, they have been used extensively in some areas of the economy (e.g. the higher education sector). Thus, while the Division seeks to substantially limit the use of these types of contracts, a large number of exceptions to its application are listed in Section 333F, and provision is made for further exceptions by regulation. This aspect will be dealt with in the second part of this article.

Summary of central provisions in the Division

As the traditional or common form of employment contract is one with a start date but no specific finish date, a contract that does have a start date and a stated finish date is generally referred to in common industrial parlance as a “fixed term contract”.

However, there are a few different types of “fixed term contract” – the most common one is a contract that has a stated end date but allows for termination by either party before that date by notice to the other. The next most common is one that allows renewal or extension of the contract after the stated end date by agreement of the parties. The most uncommon is one that has a stated end date but does not allow termination by either parry before that date except for specified “cause” (e.g. misconduct, or serious breach of contract or the like). [1]

Happily, for simplicity and for policy purposes, the new Division covers all the known variants of “fixed term” employment contracts – in particular, contracts which have terms allowing for termination prior to the specific finish date (Section 333E (1) (b)) and contracts that have a specific finish date but allow for extension or renewal (Section 333E (3) (b)). It also covers consecutive contracts in certain circumstances (Section 333E(4) and (5)).

In summary the central provision of the Division, Section 333E, prohibits an employer from entering into one of these species of fixed term contract where the period, or the total of the related separate periods exceed two years – that is:

(i) sub section (2), which prohibits a contract that has a period exceeding two years;

(ii) sub section (3)(a), which prohibits a contract that has a provision for renewal upon expiry of the contract, such that the initial term and the renewal period exceed two years;

(iii) Sub section 3 (b), which prohibits a contract providing for an option or right to extend or renew it more than once; and

(iv) sub sections (4) and (5), which prohibit consecutive contracts for the same or a similar job which either have a practical continuity resulting in a total contract period exceeding two years or which allow for the contract to be renewed or extended more than once.

Section 333E is buttressed by a number of other important provisions, most particularly:

• Section 333G, which provides that the terms of a contract which contravenes the above mentioned prohibitions remain valid, except for the provision that terminates the contract at the end of the identified period, which provision is taken to have no effect;
• Section 333H, which seeks to prohibit contracts or arrangements that endeavour to avoid the prohibitions;
• Sections 333J and K, requiring employers to give an employee engaged on a fixed term contract a “Fixed Term Contract Information Statement” before or when they start employment;
• Section 333L, empowering the Fair Work Commission to deal with disputes about the operation of the Division (e.g. whether a contract is covered by it or not), and to arbitrate such a dispute where the parties agree;
• Amendment to Section 539 (2) to provide for a civil penalty to be imposed on a party that contravenes any of the Division’s prohibitions, with a maximum penalty of 600 penalty units in the case of a serious contravention (currently equal to $165,000).

The exceptions – extensive and perhaps may grow?

When the Bill that was ultimately to become the SJBP Act was first introduced into the Federal Parliament, it provided that the amendments to the FW Act relating to fixed term contracts would commence the day after the SJBP Act received Royal Assent.  However, by the time that the Bill was passed, the commencement date had been delayed for up to a year.

The Government has not given any detailed reasons for this delay in implementation. However, it is generally understood that the Government has heeded representations from various employers and employer groups that consideration needs to be given to extending the categories of contracts or contract practices that ought be excluded from the prohibitions in Section 333E.

As enacted in December 2022, new Sections 141A and 333F provide for or facilitate various exceptions from the prohibitions. There may well be others by the time the new Division and its associated provisions commence operation (no later than 6 December 2023).

Thus, Part 2 of this article, to be published later in this year, will summarise and consider all the  various exceptions to the prohibitions in Section 333H that exist by the time all these provisions are about to commence.