A fixed term contract (or FTC) is an employment contract that specifies an end date and doesn’t require a termination process. It’s not a permanent employment contract which continues until terminated by either party. An FTC works for parental leave cover or if you need people for a specific big project. FTCs can provide flexibility for employers and opportunities for employees, but they should be approached with clarity and fairness to ensure that all parties understand their rights and responsibilities.
FTCs were significantly overhauled in the Secure Jobs, Better Pay reforms in December 2023. What does it mean for your business? Let’s have a look.
“All the world’s a stage, but not all the players get a long-term contract.” John Kenneth Galbraith
What are the benefits of an FTC?
For employers, FTC have numerous benefits. They provide a flexible workforce and enable a business to grow and reduce to adapt to the workflow. For example, a business may use them for parental leave cover, for seasonal growth, a specifically skilled employee who is only needed for a defined task, or specific projects that require short term employment.
While they have their benefits, the reforms aimed to ensure that employers don’t overuse FTC so that they can avoid hiring permanent roles. FTC can be insecure and less attractive for employees, so the reforms aim to reduce that uncertainty.
Limitations of FTC
Two Year Maximum
FTCs cannot run longer than two years in total unless there’s a specific exception that applies. This applies to contracts entered into or varied on or after 6 December 2023.
If you have a current contract that has a fixed term of more than 2 years, the legislation has the effect of striking out the non-compliant end date, thereby making the contract permanent.
No More than 2 Consecutive Contracts
In most circumstances, employers can’t give employees more than two consecutive FTC – even if the total of both is under 2 years – for the same or similar work if there is “substantial continuity” in their employment relationship. This means a business couldn’t have an employee on one-year contracts after another indefinitely.
What does substantial continuity mean? No gaps or very short gaps when the role remains essentially the same. The legislation doesn’t state a time limit and is likely to be determined on a case-by-case basis. The Revised Explanatory Memorandum talks about this idea of “substantial continuity” in the employment relationship. Basically, it means that if there are gaps between contracts that both the employer and employee don’t intend to end the relationship, those gaps won’t count against the connection between the contracts. In other words, if you have a series of fixed-term contracts and the breaks in between aren’t meant to sever the relationship, those breaks are overlooked.
Exceptions
There are some circumstances where FTCs are allowed to go beyond two years or consecutive renewals. In those circumstances, the limitations don’t apply. These include:
- Distinct, identifiable tasks requiring specialised skills
- Training contracts like apprenticeships or traineeships
- Work during peak demand periods like seasonal work
- Emergency circumstances or temporary absence cover (parental leave, workers comp leave)
- High income earners (above the threshold currently $183,100 – pro rated)
- Government funded projects where the funding is for more than two years and there’s no reasonable prospect for renewal
- Governance roles with time-limited terms specified by corporate rules
- Where a modern award or enterprise agreement specifically permits it.
What if an employer breaks the rules?
As we mentioned above, if there is an end date which is noncompliant with the FTC legislation the end date becomes invalid. This means the contract automatically converts to permanent employment. A permanent employee becomes entitled to all the benefits of your other employees including notice periods, redundancy payments and unfair dismissal protections (dating back to their contract start date).
Employers also face civil penalties which are currently up to approximately $82,500 or more for more serious contraventions.
A failure to provide the FTC Information Statement to fixed term employees when entering into the contract (or as soon as possible afterwards) could also trigger penalties.
Thinking of being creative?
We don’t recommend it – legislation is one step ahead of you. To stop employees from finding new and interesting ways to get around the FTC restrictions, the legislation now includes anti-avoidance provisions which stop employers from:
- terminate the employee’s employment for a period, and then engage the employee again for the same duties, so as to artificially break the continuity of their employment
- delay re-engaging the employee, so as to artificially break the continuity of their employment
- not re‑engage an employee and instead engage another person to perform the same, or substantially similar, work for the person as the employee had performed for the person
- artificially change 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, and
- otherwise make a change to the employment relationship.
What happens if it goes wrong?
If an employee and employer can’t resolve an issue over a fixed‑term contract at the workplace level (for example, whether a contract is prohibited or should be treated as permanent), the Fair Work Commission can step in to mediate, conciliate or consent arbitrate. Legal action in small claims jurisdiction is also possible.
How does an FTC end?
When a valid FTC ends as intended:
- The employment terminates – the employee is not “dismissed” – so it’s generally not an unfair dismissal unless there’s evidence the termination was in substance a dismissal by the employer prior to the end date.
- But if the contract expiry clause is invalid (e.g. rules were breached), as above, the employee is treated as ongoing and could access unfair dismissal processes.
Practical tips for Employers
- Audit – Know who you have engaged and how they’re engaged – make sure you haven’t got a contractor whose contract goes for over 2 years or has had consecutive renewals.
- Track – Track your FTC and make sure you don’t accidentally renew a third time (this is an important reminded on your obligation to keep employment records centralised!).
- Information Sheet – Ensure you’re providing a FTC information sheet upon engagement or ASAP afterwards – perhaps store it on your intranet with a link in your contracts or better yet, provide it with the contract itself.
- Exceptions – if you’re relying on an exception – document it. Keep a file note or include it in the contract itself – you may know about it but in 12 months time when another person is reviewing the contract how will they know the exception applies? Also think about how you would prove it if the circumstances required it.
- Avoid Resets – don’t terminate and reengage for the same role or try to be cheeky by changing the title of the role when the role is the same.
- Seek legal advice – my favourite. Always check. It’s not as straightforward as it may seem.
Fixed‑term contracts remain useful—especially for roles tied to specific timelines or funding—but the tightened rules under the Secure Jobs, Better Pay reforms mean employers must tread carefully. Going beyond two years or renewing more than once without a valid exception could see expiry clauses voided, with the contract transforming into a permanent role—and potential legal and financial consequences.
For employees, these rules offer greater security and clarity—they generally ensure you’re not stuck in indefinite short‑term contracts without permanence.
Whether you’re an HR manager reviewing templates or someone offered a fixed‑term contract, it’s important to know your rights—and to check the dates: 6 December 2023 was the key starting point, and regulatory exceptions expire by late 2025 unless extended.
If you’re a business who needs more information about FTCs please reach out to our excellent Employee Relations & Safety team via Phillip Willox, Partner, Perth.
Don’t forget to check out the rest of the Inhouse Counsel Series – from our inhouse to yours – here. If you have a topic you would like more information on, please reach out to the series editor, Yasmin Milligan via LinkedIn.
