Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 - Fixed term contracts

In the second reading speech for the Fair Work Legislation Amendments (Secure Jobs, Better Pay) Bill 2022 (Bill), the Honourable Tony Burke, Minister for Employment and Workplace Relations (and Minister for the Arts and Leader of the House), identified that:

• 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.

The Bill is designed to limit the use of fixed term contracts for the same role beyond two years or two consecutive contracts, whichever is shorter, including renewals.  Where these rules are breached, the term of the contract that provides for its expiry on a set date will be of no effect, but otherwise the contract will be valid.  The provisions also allow employers to use fixed term contracts for legitimate purposes, while providing appropriate protections to employees.

To achieve these outcomes, the Bill includes the following provisions as discussed in this third article in our series, noting that references to a ‘fixed term’ contract below include a maximum term contract, being one that has an identifiable end date but which also contains terms that provide for it to be terminated before that date (for example, a termination ‘on notice’ right).

A modern award can include terms that permit an employee to be employed under a fixed term contract.

Certain limitations on the use of fixed term contracts are created under the Bill, and any breach may attract the imposition of a civil penalty. 

In particular and subject to a number of exceptions, some of which are identified below, an employer will breach the new provisions if:

• they enter into a contract of employment with an employee (the current contract), and
• the contract is a fixed term contract, and
• the employee is not a casual employee, and
• any of the following provisions apply:

1. the term of the contract is greater than two years, or
2. the term of the contract and any other period for it can be extended or renewed is greater than two years, or
3. the contract provides for an option or right to extend or renew the contract more than once, or
4. the contract comes into effect after another contract (the previous contract) of employment between the employer and the employee in the following circumstances
   1. the previous contract included a term that provided that the contract would terminate at the end of a fixed term, and
   2. the previous contract was for the employee to perform the same, or substantially similar, work for the employer as the employee is required to perform under the current contract, and
   3. there is substantial continuity of the employment relationship between the employer and employee during the period between the previous contract terminating and the current contract coming into effect, and
   4. either of the following apply:

• the term of the previous contract and the fixed term for the current contract is greater than two years, or
• the previous contract or the current contract contains an option for renewal or extension.

The basic effect of these provisions is that an employer will be prohibited from entering into a fixed term contract with an employee that:

• operates for a period greater than two years
• could operate and be extended or renewed for a period greater than two years in total, or
• provides for an option or right to extend or renew the contract more than once.

There are some limited exceptions to these new provisions, including where (amongst others):

• the employee is engaged to perform only a distinct and identifiable task involving specialised skills, or
• the employee is engaged in relation to a training arrangement, or
• the employee is engaged to undertake essential work during a peak demand period, or
• the employee is engaged to undertake work during emergency circumstances or during a temporary absence of another employee, or
• in the year the contract is entered into the employee earns more than the high income threshold (currently $162,000) for that year (noting that provisions are included to cover part-time work arrangements and periods of employment of less than one year).

If an employer wishes to rely upon an exception in civil penalty proceedings, they bear the onus of proof of establishing the exception applied.

If an employer enters into a contract of employment that contravenes the new provisions, the term that provides for the end of the contract at / on a specific date will have no effect, however this will not affect the remainder of the contract.  This could result in the employee being entitled to notice and redundancy pay, and protection from unfair dismissal under the Fair Work Act 2009 (Cth) (FW Act).

Importantly, an employer must not take any of the following actions to avoid the new provisions:

• terminate an employee’s employment for a period
• delay re-engaging an employee for a period
• not re-engage an employee and instead engage another person to perform the same, or substantially similar, work for the person as the employee performed
• change the nature of the work or tasks the employee is required to perform, or
• otherwise alter an employment relationship. 

If a reason for an employer taking action includes one of these actions, then the new provisions will be breached.It seems reasonable to assume that this will operate in the same way as the general protections provision in the FW Act, whereby the proscribed reason does not have to be the sole or dominant reason, but must be a substantial and operative reason.

To assist parties in relation to the new obligations, the Fair Work Ombudsman will be required to publish a Fixed Term Contract Information Statement (i.e. similar to the Fair Work Information Statement and the Casual Employment Information Statement).  The new statement will be required to be given to employees where they are offered a new contract of employment that is for a fixed term.  This is required to be provided before, or as soon as practicable after, the contract is entered into.  A failure to provide the new statement can attract the imposition of a civil penalty.

The Bill also includes provisions to deal with disputes about the operation of the new provisions.  In the first place, an employer and employee are required to attempt to resolve the dispute by discussions at the workplace level.  If this fails to resolve the dispute, either party can refer it to the Fair Work Commission (Commission).  The Commission must then deal with the dispute, via mediation, conciliation, making a recommendation or expressing an opinion, although if both of the parties agree to the Commission arbitrating the dispute, the Commission can do that.  Representation is permitted in matters before the Commission, however a lawyer or paid agent needs the permission of the Commission to appear.

The new limitations will apply from commencement (of the new part of the Bill) to all contracts of employment entered into on or after commencement (of the new part of the Bill).

An employer or employee can apply to the Commission for a determination to vary an enterprise agreement that covers them to resolve any difficulty relating to the interaction between the enterprise agreement and the new provisions.

Since this article was published on 16 November 2022, the following information has changed:

On 6 December 2022, the Honourable Tony Burke, Minister for Employment and Workplace Relations (and Minister for the Arts and Leader of the House), confirmed:

• the provisions relating to fixed term contracts will come into effect 12 months after the Secure Jobs, Better Pay Act receives Royal Assent (which was confirmed on 6 December 2022), which means they will operate on and from 6 December 2023, and
• he will not be making a proclamation.

This means the new provisions will apply to contracts entered into on or after 6 December 2023, although fixed term contracts entered into prior to that date will be relevant in determining whether an employer and employee have subsequently entered into a prohibited consecutive contract.