Employers will need to fix their fixed-term habit
The Government considers fixed-term contracts exacerbate job insecurity for employees when they are used for the same role over an extended period, or where employees are subject to rolling contract renewals for jobs that would otherwise be ongoing.
The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 will, if it becomes law, prohibit the entry into fixed-term contracts of employment with an employee of a certain kind in certain circumstances.
What contracts will this apply to?
A fixed-term contract, for the purposes of this prohibition, is a contract that contains a term that provides the contract will terminate at the end of an identifiable period (whether or not the contract also includes other terms that provide for circumstances in which it may be terminated before the end of that period).
The term does not have to actually specify the period or maximum period the contract will operate. It just requires that the period be identifiable from the term. The term does not need to be expressed in writing or be the subject of oral agreement. It could arise by implication where an employee is engaged for a purpose that has a discrete shelf-life.
The new provisions might apply to secondments and labour hire assignments. Express exclusions apply, including where the contract is for an employee to perform an identifiable task or a specialised skill, or it relates to a position for which there is one-off government funding.
When will a person contravene the laws?
A person will contravene the new laws if they enter into a relevant fixed-term contract in any of the following circumstances:
- the identifiable period is greater than 2 years;
- the sum of the identifiable period and any other period for which the contract may be extended or renewed is greater than 2 years;
- the contract provides for an option or right to extend or renew the contract more than once;
- the contract is a second successive fixed-term contract for the employee to perform the same, or substantially similar, work for the employer over a period in excess of 2 years; or
- the contract is a second successive fixed-term contract for the employee to perform the same, or substantially similar, work for the employer and the first contract or the second contract contains an option for renewal or extension.
In the case of the last two categories, the explanatory memorandum to the Bill suggests the second contract will be successive despite a short break between contracts that is not intended to end the employment relationship. Examples might be sessional contracts in the higher education sector that finish at the end of one semester and start at the beginning of the next semester, or where the second contract starts after an employee has taken a short break for personal reasons. However, breaks that are contrived by employers to avoid the prohibition will lead the employer to potential civil liability under anti-avoidance provisions.
What are the anti-avoidance provisions?
The new laws will have comprehensive anti-avoidance provisions that prohibit certain actions where these are taken to avoid the above prohibition. These include:
- making changes to the timing or terms of a fixed-term contract, e.g. artificially changing the work duties of the employee between two contracts so that the employee could not be said to be performing the same or similar work for the employer;
- ending one employee’s employment in accordance with the terms of their fixed-term contract, and engaging another employee to perform the same or similar work;
- terminating an employee’s employment for a period;
- delaying re-engaging an employee for a period;
- changing the nature of the work or tasks the employee is required to perform;
- otherwise altering an employment relationship; and
- requiring employers to provide to new employees before, or as soon as practicable after, entering into a fixed-term contract the Fixed Term Contract Information Statement, to be drafted by the Fair Work Ombudsman.
A person contravening these prohibitions will attract civil liability and a penalty.
The anti-avoidance provisions are contravened if, because of the prohibition against successive contracts, a fixed-term contract is allowed to lapse and another employee is employed under a fixed-term contract to perform the same or substantially the same work. Even if one of the reasons for doing so was because another employee is considered more suitable or a better performer, you will have contravened the anti-avoidance provisions if one of the reasons was to avoid the prohibition on fixed-term contracts. Moreover, if the employee challenges their non-engagement as a general protections contravention, the onus will be on the employer to prove that the decision was not because of the prohibition.
Will fixed-term contracts still be enforceable?
If you enter into a prohibited fixed-term contract, it is still enforceable. However, you could not rely on the expiration of the contract term as a basis for the employment ending. If the contract contains clauses that require the employer to give notice, or payment in lieu of notice on termination of the contract, and to give redundancy pay to the employee, the employee may still be able to rely on these clauses, as long as they are more beneficial than the minimum standards in the National Employment Standards or an applicable award or enterprise agreement.
Disputes about fixed-term contracts can be referred to the Fair Work Commission, which can try to resolve the dispute by mediation, conciliation, making a recommendation, expressing an opinion or, if both parties agree, arbitration.
How can you prepare for the law changes?
In advance of these laws coming into effect, you need to review the manner in which your business uses fixed-term employees to ensure it is consistent with the new provisions. The reasons for engaging an employee on a first or second fixed-term contract need to be documented, ideally in the contract itself, with an employee acknowledgement. This is particularly important where you intend to rely on any of the exceptions to the prohibition.
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