Fixed Term Contracts – What Do the Changes Mean for Your Business?

This material is designed and intended to provide general information in summary form on legal topics, current at the time of publication, for general informational purposes only. This is not legal advice. 

Introduction 

A fixed term contract (FTC) is an employment agreement that specifies an end date to the period of employment. This contrasts with an ongoing or permanent contract with no end date. FTCs can be useful, particularly for employers, to address temporary staffing shortages and/or ad-hoc business needs – eg seasonal work, parental leave covers, project work. However, FTCs can also be misused and harm workers, especially when they are repeatedly renewed to keep a worker in limbo without the protections of permanent, stable work.   

This is why laws regarding FTCs were changed in the last year. From 6 December 2023, the Fair Work Act 2009 (Cth) (the Act) has put in place several limitations in engaging employees on FTCs. Employers must comply with these rules as breaching them may lead to lengthy and costly legal proceedings and civil penalties. Alongside the Fair Work Information Statement, employers now must provide employees hired on FTCs with the Fixed Term Contract Information Statement.  

This factsheet aims to provide employers, particularly small businesses with limited resources and no human resources consultants, with a summary of key points employers should know about new limitations on the use of FTCs.  

New limitations on the use of fixed term contracts 

Contracts entered into after 6 December 2023 have the following time limitations: 

1. FTCs cannot be renewed or extended more than once; and 
2. FTCs cannot be longer than a period of 2 years. 

This means that even if a contract has two renewal or extension options which add up to a total period of less than 2 years, it will be invalid. This is because it has more than one renewal or extension option. 

Additionally, FTCs cannot be offered to employees if: 

3.The previous contract was also an FTC; and 

4. The previous FTC and the new FTC are for the same, or similar, work; and 

5. The employment relationship significantly continued between the previous and new FTCs; and 

6. If any of the following apply: 

          a. The previous FTC was renewed and extended; or 

          b. The total period of employment between the previous and new FTCs is more than 2 years; or 

         c. The new FTC has an option to renew or end; or 

         d. There was an initial FTC (before the previous FTC) between the employer and employee: 

            i. That was an FTC; 

            ii. That was for same or similar work; and 

            iii. Where the employment relationship significantly continued between the FTCs. 

If the above rules are breached, then the contract will continue to remain on foot, beyond the specified end date.  

Example  

Flavia is a plumber and works at Easy Pipes, a plumbing business in Murray Bridge. Flavia was initially hired on a 6-month fixed term contract in September 2023 (initial contract), which was due to end in March 2024. The initial contract had an option to extend for one year, which was used and extended her contract to March 2025. 

In March 2025, after Flavia’s initial contract finished, Easy Pipes offered her a new 12-month contract to work as Plumber (new contract). Flavia accepts the new contract. 

The new contract breaches the FTC limitations because:  

• The initial contract was also an FTC; 

• The new contract is for the same work; 

• The employment relationship between the initial and new contracts significantly continues;  

• The initial contract had an extension that was already used; and 

• The total period of employment is more than two years. 

Thus, the term in Flavia’s new contract which says the end date is March 2026 is ineffective, and the contract will continue beyond that date.  

Anti-avoidance provisions 

The Act contains ‘anti-avoidance’ rules that prevent employers from dodging the new limitations that give rights to employees. These rules prevent employers from: 

• Terminating an employee’s employment for a period of time; 

• Delaying re-engaging an employee for a period; 

• Not re-engaging an employee and instead engaging another person to perform the same, or similar, work; 

• Changing the nature of the work and tasks of the employee; or 

• Otherwise changing the employment relationship. 

Breaching the above rules could be considered as taking adverse action against an employee. The employee may then be in their rights to make a General Protections claim.  

Exceptions to the new limitations on the use of fixed term contracts 

The Act contains several exceptions to the new rules about FTCs. There are situations where the limits on FTCs do not apply. These include, but are not limited to, the following situations: 

• Where the employee is hired to work on a specific task involving specialised skills 

• Where the employee is hired under a traineeship or apprenticeship 

• Where the employee is hired to do essential work during a peak demand period 

• Where the employee is hired to work during an emergency or during a temporary absence of another employee  

• Where the employee’s annual salary is above the high-income threshold 

• Where the contract:  

         Relates to work funded by government, and  

         The funding is payable for a period of more than 2 years, and 

         There are no reasonable prospects that the funding will be renewed by the end 

• Where the contract relates to a governance position that has a time limit 
• Where an employee is covered by an Award which overrides the limitations outlined above 

Example 

Natalya is a software engineer with 15 years of experience. She is about to start a new job as a Senior Manager. Her contract is for a period of 3 years and states the salary is $160,000 per year. This breaches the FTC limitation rules because the income is under the high-income threshold and it is not for a specific task involving specialised skills. 

Example 

Rowan is appointed to the Board of Directors of Real Work Safety, a company that specialises in PPE for the construction industry. Rowan’s contract is for a period of five years. This is allowed because the contract relates to a governance position.  

Note: The laws around fixed term contracts can be complex. It is essential to obtain independent advice to ensure you are complying with the relevant laws. If you are a small business, you may be eligible for assistance from the Fair Work Ombudsman. For more information, see this link: https://smallbusiness.fairwork.gov.au/help-for-small-business#access-specialist-help-and-information.