As of December 6th, 2023, new legislation has significantly impacted the use of fixed-term contracts (FTC) and maximum-term contracts in Australia. These changes aim to provide greater security and stability for employees, particularly those who have been engaged on a series of consecutive contracts.

Automatic conversion to permanent employment

Under the new rules, employees engaged on FTCs or maximum-term contracts will automatically become permanent employees in the following situations:

• Contract exceeds two years: If the initial contract or its renewals and extensions exceed a total of two years, the employee automatically gains permanent status.
• Multiple consecutive contracts: If an employee has been engaged on consecutive fixed-term contracts for the same role, and the total engagement exceeds two years, they are considered permanent regardless of each individual contract length.
• Contract allows for multiple extensions: Regardless of the overall contract length, if it allows for more than one extension or renewal, the employee automatically gains permanent status.

Benefits of permanent status

When an employee automatically becomes permanent, they gain crucial benefits, including:

• Unfair dismissal protection: They are protected from unfair dismissal and have access to unfair dismissal remedies.
• Notice of termination: They are entitled to reasonable notice of termination, as specified in their contract or applicable award.
• Redundancy payments: If made redundant, they are entitled to redundancy pay based on their length of service backdated from the start of their employment.

Exemptions and avoidance activities

However, there are certain exemptions to the automatic conversion rule. These exemptions include:

• Genuine projects: FTCs for genuine projects of a defined duration.
• Temporary replacements: Contracts covering temporary absences of regular employees.
• Specific industry exemptions: Specific industries may have exemptions based on established practices.

Additionally, the new legislation prohibits certain avoidance activities that employers may attempt to circumvent the rules:

• Terminating and re-engaging: Terminating an employee's contract solely to avoid the two-year limit and then re-engaging them later.
• Engaging others: Not re-engaging an employee and instead hiring someone else for the same or similar role.
• Altering work nature: Changing the nature of the work to justify a new FTC instead of making the employee permanent.

Application and information statement

The new rules apply to all FTCs and maximum-term contracts entered into after December 6th, 2023. However, any previous contracts will be considered when calculating the two-year limit. Additionally, employers are required to provide a Fixed-Term Contract Information Statement to all employees entering such contracts. This statement provides clear information about the employee's rights and entitlements. You can download this statement from Fair Work here.

Overall impact

These significant changes represent a major shift in the landscape of fixed-term contracts in Australia. By limiting their use and providing automatic conversion to permanent employment in specific situations, the new legislation aims to create greater security and stability for employees, particularly those who have been engaged on consecutive contracts. It is crucial for both employers and employees to understand these new rules and ensure compliance to avoid potential legal repercussions.