The end of long-term maximum or fixed term contracts, unlocking pay secrecy clauses and a new paid entitlement to family and domestic violence leave

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Act), which received Royal Assent on Tuesday 6 December 2022, made sweeping changes to workplace laws and primarily the Fair Work Act 2009 (FW Act).

This blog (one in a series written by Thomson Geer discussing the changes to the Act) focuses on significant changes to employment contracts and entitlements that have not received widespread attention.  In particular, we explain the new bans on long-term fixed or maximum term contracts, pay secrecy clauses, flexible work arrangements and paid family and domestic violence leave.

The end of long-term outer limit fixed or maximum term contracts?

In a move that will undermine the legitimacy of project-based engagements except in narrow circumstances, the FW Act will dramatically limit the use of fixed or maximum term (or ‘outer limit’) contracts to perform the same role beyond a total of two years.  Subject to the limited exceptions we address below, the ban will cover any combination of:

• a single fixed or maximum term contract;
• a series of fixed or maximum term contracts; or
• one or more contracts containing one or more options to renew.

Once the changes come into effect, on 6 December 2023 or other date of proclamation, any sunset clause of a contract entered into on or after that date fixing an outer limit exceeding two years will have no effect.  The validity of the rest of the contract will be unaffected.  The result will be to convert affected outer limit employment to ongoing permanent employment, automatically, without any further step by either the employer or employee.

In addition, if an employee enters into a new outer limit contract on or after 6 December 2023, the outer limit of any pre-existing outer limit contract may count towards the two year cap.

The two-year cap applies despite a gap between contracts if there is substantial continuity between the two periods of employment, at least one of the employment contracts has an outer limit, and the employee performs the same, or substantially similar, work under each.

These changes will create real challenges for:

• contractors on projects that take more than two years to complete, by shifting additional project cost and risk onto them, if it requires them to provision for redundancy costs they have not priced into their bid for employees they have engaged as outer limit workers;
• sectors that typically engage people on a series of maximum term contracts; and
• employers of professionals, such as junior doctors or vets, who have typically been employed for only the duration of a residency exceeding two years.

In practice the changes may, depending on the circumstances, give an affected employee an entitlement to claim redundancy pay when their employment ends.

Just as importantly, termination of employment for such employees may lead to reasonable notice claims.  In the absence of an express notice provision, they may be entitled to such notice of termination as is reasonable in all the circumstances, which could be significant, depending on the circumstances, for a senior, long-standing, high performing employee.

This is a civil remedy provision, and breach will expose the employer, and anyone involved as an accessory, to a civil penalty.

The ban is not absolute, and permits an outer limit (i.e., maximum or fixed term) exceeding two years in a range of circumstances including:

• to perform only a distinct and identifiable task involving specialised skills;
• as a trainee or apprentice;
• if the employee earns more, under the contract, than the high-income threshold in the year in which they enter into the contract (pro-rated in accordance with the regulations for part time employees and those required to work for only part of a year);
• to perform a governance position that has a time limit under the governing rules of a corporation;
• to perform essential work during a period of emergency; or
• as permitted by a modern award.

The person who wishes to establish an exemption (typically the employer) bears the onus of proof.

In addition to existing prohibitions on employers taking adverse action against an employee because of a workplace right, the wide-ranging anti-avoidance provisions prohibit any person avoiding any right or prohibition under the outer limit provisions by:

• terminating an employee’s employment for a period;
• delaying re-engaging an employee for a period;
• not re-engaging an employee and instead engaging another person to perform the same, or substantially similar work;
• changing the nature of the employee’s work; and
• otherwise altering the employment relationship.

The Fair Work Ombudsman is to develop and publish a ‘Fixed Term Contract Information Statement’ that the employer must give any person who enters into an outer limit employment contract – either before, or as soon as practicable after, entry into the contract.  Failure to provide this Statement will also expose the employer, and anyone involved as an accessory, to a civil penalty.

Parties will have a duty to try to resolve at the workplace level any dispute about sunsets, and either party can refer a dispute to the Fair Work Commission.  The Commission must deal with any dispute, and may arbitrate if the parties agree.

Employers will need to review their current workforce and employment contracts, and assess whether they can prove they fall within any of the limited exception/s.  Special care will need to be taken if any fixed term employment contracts are to be offered in the future to ensure compliance with these new provisions.

Pay secrecy clauses

Since 7 December 2022, an employee has additional workplace rights under the FW Act, to:

• disclose, or not to disclose, to any other person (including another employee or employer) their remuneration and/or any other terms and conditions of their employment reasonably necessary to determine remuneration outcomes; or
• ask any other employee (even if that other employee is employed by a different employer) about their remuneration and/or any other terms and conditions of their employment reasonably necessary to determine remuneration outcomes.

These workplace rights, and a person’s rights to exercise them, continue after employment ends.

Any pay secrecy clause in an employment contract or a fair work instrument (such as a modern award or enterprise agreement) has no effect.  The rest of the document is unaffected.

An employer faces a civil penalty for entering into an employment contract or other written agreement with an employee that includes a pay secrecy clause.  However, employers are not required (or expected) to disclose employee remuneration.

Employers have until 7 June 2023 to make sure new contracts of employment comply with these changes, or face penalties for breach and heightened penalties for any serious breach.

Careful auditing, supported by agreed variations to existing contracts, before June 2023, will help employers to manage these risks.

Flexible work arrangements

The Act adds to an employer’s obligations in responding to an employee’s flexible work request from 6 June 2023, obliging an employer to take more steps in the timeframe available.

Adding to the existing grounds to request flexible work arrangements, an employee may seek an accommodation because they have experienced family and domestic violence (as defined under the Act).

In line with existing provisions, an employer must respond to a flexible work request within 21 days.

From 6 June 2023, the employer’s written response must:

• approve the request;
• document the agreed alternative or variation to the employee’s request; or
• reject the request, but only on the reasonable business grounds that the employer sets out in its response, explaining how they apply to the request, after the employer has, within that 21 days:
• discussed the request with the employee;
• genuinely tried to reach agreement that would accommodate the employee’s circumstances, but to no avail; and
• had regard to the consequences of the refusal for the employee.

A written refusal must also set out any accommodations the employer would be willing to make or, if there are none, the refusal must say that expressly.

Employers will need to have their processes ready, train the managers of their remote workplaces in how to identify and escalate (promptly) any request received, and act swiftly to consider, engage with and rule on any request.  Even then, the 21 day timeframe will be very tight.

If an employer rejects a request or does not provide a written response within the 21-day timeframe, there is a dispute and the parties to it are duty bound to try to resolve the dispute at the workplace level.  If discussions are not fruitful, a party to the dispute may refer it to the Fair Work Commission.  The employer and employee have a right to appoint a person or industrial association for support or representation in resolving the dispute or the Commission dealing with the dispute.

The Commission must first deal with the dispute without arbitrating, unless it is satisfied that there are ‘exceptional circumstances’ (which is not defined).

If the Commission arbitrates and it is satisfied that there is no reasonable prospect of resolving the dispute without an order, the Commission may, after taking into account fairness between the employer and the employee (and otherwise without limiting its powers):

• if the employer has refused a request, declare any business grounds to be, or not to be, reasonable business grounds;
• if it finds that the employer has not responded, or not responded adequately, to a request, order the employer to take such further steps as the Commission considers appropriate; or
• order the employer to grant the request or to make specified other changes to the employee’s working arrangements to accommodate, to any extent, the circumstances that the employee cites in support of the flexible work request.

These provisions give the Commission the power to impose an arbitrated outcome. Contravention of an order is a civil remedy provision, exposing an employer to a civil penalty.

Prudent employers will review and update their processes, train their managers and prepare for the 6 June 2023 commencement of these provisions.

Paid family and domestic violence leave

Building upon the existing entitlement to five days of unpaid family and domestic violence leave (which is already part of the National Employment Standards in the FW Act), all eligible (full time, part time and casual) employees will soon be able to access 10 days of paid family and domestic violence leave in any 12-month period.

Small business will have an extra six months to prepare for the additional 10 days’ paid leave entitlement, as summarised in this table:

Family and domestic violence leave

EntitlementCurrentNew5 days unpaid per annum10 days paid per annum (non-accumulative)Change takes effect fromSmall business employer
(fewer than 15 employeeson 1 February 2023)Other employers(15 or more employeeson 1 February 2023)1 August 20231 February 2023

The entire year’s paid leave entitlement (i.e., all 10 days) is available to an eligible employee (subject to the dates above) for the entire year, on a ‘use it or lose it’ basis, as soon as they start employment or, as applicable, as soon as the relevant year commences.  While the entitlement does not accumulate from year to year if not accessed, it refreshes each year on the employee’s work anniversary.

Until the paid entitlement commences (and replaces the unpaid leave entitlement), an eligible employee can access the existing five days’ unpaid family and domestic violence leave entitlement.

The definition of family and domestic violence will expand beyond the existing definition. The existing definition covers violent, threatening or other abusive behaviour by an employee’s close relative (as defined by the FW Act) that seeks to coerce or control the employee or cause them harm or fear; the new definition includes such conduct by a current or former intimate partner of an employee, or a member of an employee’s household.

Employers will need to make sure their leave policies and payroll systems (and personnel) are updated to accommodate these changes.

Next Steps

These changes are significant and require affected employers to plan, now, for what the additional obligations mean for their business.

For further assistance and understanding about what these changes mean for your business and our recommended practical compliance steps please contact a member of our Employment & Safety team.

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