The Fair Work Act has expanded significantly, now surpassing 1500 pages, adding more complexity and regulatory burden for Australian businesses. The most recent wave of changes, introduced through the Closing Loopholes legislation, marks another significant step in the Albanese Government's IR reform agenda. These reforms expand the ability of trade unions and the Fair Work Commission to intervene in employment relationships, making it harder for businesses to operate with the same level of flexibility they once had.
Restrictions on Fixed Terms Contracting
The Closing Loopholes legislation followed on from previous changes to the Fair Work Act. One of the most impactful changes under the earlier Secure Jobs, Better Pay legislation was the restriction on fixed term contracts. From 6 December 2023, new laws limited the use of fixed term employment contracts, with certain contracts now deemed unlawful. Approaching the first anniversary of the implementation of those laws, these changes constitute a significant shift for employers who rely on fixed term contracts for both certainty and flexibility in workforce management.
Key restrictions include:
- Prohibitions on fixed term contracts exceeding two years (including by renewal).
- Significant prohibitions on rolling contracts: two cannot extend beyond two years; three in a row are prohibited.
- Contracts allowing renewal more than once are forbidden.
Heavy fines of up to $187,800 may apply to businesses for serious breaches of these rules.
The Government’s rationale is to promote job security, particularly for female employees and others who have been engaged in rolling fixed term contracts for more than two years. However, many businesses view these changes as a restriction on their ability to structure their workforce according to operational needs.
Business Impact: Flexibility Lost
Fixed term contracts have long been used by businesses to cover temporary roles, match labour to specific projects, and respond to fluctuating demand. They offer certainty by allowing businesses and employees to know the precise end date of employment, which avoids the complexity and potential business cost and risk of permanent contracts, such as unfair dismissal claims or redundancy payments.
With these reforms, much of this flexibility is lost. Employers can only use fixed term contracts under limited exceptions, such as for high-income earners (over $175,000), government-funded roles, or highly specialised and temporary tasks. However, even these exceptions are likely to be narrowly interpreted by the courts, increasing the risk of non-compliance.
Broader Consequences for Businesses
The changes to fixed term contracting will inevitably lead to higher costs for businesses. With restrictions on the use of fixed term contracts, businesses may be forced to offer permanent employment, which comes with additional costs like redundancy pay, notice periods, and the potential for unfair dismissal claims. For small businesses in particular, this could result in a significant administrative burden and financial strain.
In addition, these reforms open up the likelihood of disputes and litigation. The Fair Work Commission is empowered to resolve disputes related to fixed term contracts, which may include arbitration if both parties agree. This adds a further layer of complexity, as legal costs and emotional toll from litigation burdens both employers and employees.
Freedom of Contract: A Casualty?
Beyond the immediate costs, the restrictions raise broader questions about freedom of contract. Many argue that the Government’s intervention curbs the ability of businesses and employees freely to negotiate contracts that best suit their circumstances. In an uncertain economic environment, these reforms impose further headaches that many businesses could do without.
While the full effects of these changes will take time to unfold, they undeniably present a challenge for businesses, particularly those that depend on flexible employment arrangements.
This article does not constitute legal advice. If you need guidance on your fixed term contracts, please email the team at info@ablawyers.com.au.
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