ARTICLE
15 April 2024

New law limiting the use of Fixed Term Contracts of employment: commenced 6 December 2023, but many exceptions – Part 3 Of 3

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Carroll & O'Dea

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Discusses major exemptions from the new law of limitations to fixed term contracts of employment.
Australia Employment and HR
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In a previous article on this website we advised that changes to Federal law enacted on 6 December 20221 limiting the use of "fixed term contracts" by employers would commence on 6 December 2023.

That article briefly described the scope and purpose of those changes and foreshadowed that we would publish a further article on this subject close to the time of commencement of these changes in order to provide more detail, particularly on the various exemptions to the new limitations.

In Part Two of this series we summarised the main aspects of the changes.

In this third and final article, we will discuss the major exemptions from the new law (i.e., those instances or circumstances where employers can continue to use "fixed term contracts" that do not comply with the limitations the new law prescribes).

The main exceptions to the limitations on fixed term contracts

In our first article on this subject last year we noted the Government's rationale for the changes to the law on this subject – i.e. to eradicate "rolling" fixed term contracts that "amount to a permanent probation for employees" -but we also pointed out that there is a general consensus that "fixed term" or "maximum term" contracts, and renewals of them, have a proper place in employment law in some situations. That is why there are a significant number of exceptions – both in the legislation when it was enacted, and in Regulations that took effect with the legislation on 6 December 2023.

All of the exceptions are described in the FTC Information Statement, but the following in our view are the main ones in practice.

A) High Income Threshold: The earnings of the employee concerned, in the year the contract is entered into, are above the "high income threshold" for that year 2. The rationale for that exclusion is this: employees earning above the threshold are generally considered to have sufficient bargaining power to negotiate the terms of their contracts, and are paid at a level where certain "industrial" rights provided for most employees under the Fair Work Act (most particularly unfair dismissal rights and award coverage) are excluded. Note the current amount of the high income threshold is $167,500.00, but it will be adjusted upwards every 1 July by reference to a formula prescribed in the Regulations under the Fair Work Act 3.

B) Specialised skills: the employee is engaged under the contract to perform only a distinct and identifiable task involving specialised skills 4. The example given in the FTC Information Statement is a technology professional who is engaged to apply their skill for a particular project on an initial six month contract but with provision for multiple extensions if there are delays. Accordingly, the exception appears to be limited to employees with specialised skills for a specific task that could take more than two years or need more than one extension.

C) Peak periods: the employee performs essential work in a peak period 5. Some industries have "peak" periods or seasons and this exception appears to be designed for essential workers in that situation. The example in the FTC Information Statement is that of a ski patroller with first aid skills employed for a ski season, the period of which is finite but not fixed.

D) Emergency and temporary replacement: The employee is engaged to undertake work "in emergency circumstances" or during a temporary absence of an employee 6. This exemption is somewhat odd in that it includes in the one exemption two situations which could be very different. The FTC Information Statement does not provide an example of "emergency circumstances", presumably as the words speak for themselves and examples could be too confining. In relation to replacement of a temporary employee the common situation is that of an employee replacing an employee on parental leave for a fixed period, and the FTC Information Statement then posits the example of such a replacement employee being on a fixed term contract for the duration of the anticipated absence of the employee concerned, but then that employee extends their absence so that the temporary replacement employee ends up being employed on multiple fixed term contracts and/or extending beyond two years.

E) Governance position: the employment is for a governance position the term limit of which is prescribed by the rules or constitution of the organisation concerned. This exemption is relatively straightforward but very limited in scope. It is not uncommon for (say) a not for profit association to have a Constitution that allows a person to have a fixed or maximum term of office that is more than two years, or a number of consecutive terms up to a maximum period of say eight years or ten years. However, the instances in which this exemption will apply would be limited, as normally such governance positions are held by persons who are not employees of the organisation concerned 7.

F) Finite funding period: the employee is engaged on a contract that is subject to government funding where two conditions apply: first, that funding is for more than two years, and second, there are no reasonable prospects that the funding will be renewed. It is not uncommon in the not for profit sector for employees to be engaged on maximum terms contracts for terms equivalent to the period of government funding for the organisation concerned (eg funding for three years). This exemption caters for that situation, but in a quite limited way, because often organisations might have a fixed period of funding but with a reasonable chance, although no guarantee of further funding after that period expires. The exemption would not seem to embrace such a situation.

G) Award provision: the employee is covered by an Award that allows for fixed term contracts that do not fall within the limits allowed by Section 333E. Awards in certain industries have traditionally made allowance for fixed term contracts that might result in an employee having many such contracts over far more than two years – the most well known example is the higher education industry 8. The significance of this exemption is that it will allow for FWC in future to make or alter other awards to allow for fixed term contracts that are not consistent with the limits set by Section 33E. FWC would of course have to be convinced of the need for any such initiative based on the evidence provided to it by the interested parties in relation to that particular award, so it is unlikely this exemption will result in widespread exemptions in future.

H) The Fair Work (Fixed Term Contracts) Regulation 2023 (the FTC Regulation) allows a "window" of about seven months (i.e. from 6 December 2023 to 30 June 2024) for fixed term contracts to be entered into for certain types of specialised or "niche work" employees that do not comply with the limits of Section 333E – such as elite athletes, sports industry professionals (eg match officials, coaches), live performance industry employees, higher education employees and employees of private philanthropic entities 9.

Conclusion – seek advice if you are not sure

There is no doubt that the provisions of the Secure Jobs Better Pay Act in relation to fixed term contracts are a major reform of Australian employment law, which will go some way to eliminating the practice of employing people on "rolling" fixed term contracts over many years without any justifiable reason for it (apart perhaps from a desire by the employer to minimise the prospects of unfair dismissal claims).

However, the phalanx of exemptions is quite large, with some of them being open to interpretation by the courts in future where disputes arise. In general though, it can be reasonably anticipated that the courts would, in instances where an exemption could be given a wide or narrow interpretation (eg "specialised skills") apply the narrower interpretation, to ensure the purpose of this legislative reform is not undermined.

Footnotes

1 Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) (Secure Jobs Better Pay Act) and the Fair Work Amendment (Fixed Term Contracts) Regulation 2023 (Cth) (FTC Regulation).

2 Section 333F (1) (e); The "High Income Threshold" is prescribed by Section 329 of the Fair Work Act 2009 (Cth) and operates to exclude employees earning above that threshold from certain of the rights conferred by that Act, most conspicuously being the right of most employees to bring an unfair dismissal claim, and now including exclusion from the limitations on fixed term contracts applying to most employees from 6 December 2023.

3 See Clause 2.13 of the Fair Work Regulations 2009 generally, and Clause 2.14 specifically for fixed term contracts.

4 Section 333F (1) (a).

5 Section 333F (1) (c).

6 Section 333F(1) (d).

7 Section 333F (1) (g).

8 See for example the Higher Education Industry – Academic Staff – Award 2020, Clause 11.

9 See Clause 2.15 of the FTC Regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
15 April 2024

New law limiting the use of Fixed Term Contracts of employment: commenced 6 December 2023, but many exceptions – Part 3 Of 3

Australia Employment and HR

Contributor

Established over 120 years ago, Carroll & O’Dea Lawyers offers expert advice and strong advocacy for clients. With a commitment to high-level service and legal expertise in all areas, they blend tradition with modern skills.
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