What is a fixed term contract?

A fixed term contract is an employment contract that lasts for a specified period. It has a clear start and end date.

When should a fixed term contract be used?

A fixed term contract can be used to support a temporary engagement. It allows a company to engage a worker for a set period where work is not expected to be ongoing.

For example, it may be used to cover a temporary absence, such as a parental leave period, or to  support short-term projects.

The use of fixed-term contracts is subject to legal restrictions. They should be used with caution and only in appropriate circumstances.

When should a fixed term contract not be used?

A fixed term contract would not be suitable for roles that are ongoing or expected to continue beyond a specified period.

Further, the Fair Work Act 2009 (Cth) prohibits the use of fixed-term contracts in all but a very limited set of circumstances.

A fixed term contract cannot exceed two years in total, including any extensions or renewals.

Additionally, employers cannot offer more than one extension option, or rehire the same employee for the same or similar work in a way that exceeds the two-year limit.

Fixed term contracts should not be used to avoid a permanent employment arrangement or for casual employees where work is expected to be ongoing. Employers should be clear about the entitlements that apply during the contract period and at its end, and seek legal advice if unsure.

While there are some limited exceptions to the prohibition on fixed-term contracts, employers should be cautious and seek legal advice before using fixed term contracts because these exceptions do not have wide-ranging application.

Considerations for employers

Before considering a fixed term contract, employers should confirm that the role is genuinely time-limited and not expected to continue beyond a defined period.

The contract must be drafted in a way that does not contravene the fixed term contract limitations in the Fair Work Act 2009 (Cth).

Please note that this template contract includes a non-compete restraint clauses. In mid-2025, the Australian Government announced a policy to ban these types of clauses in employment contracts from July 2027 for employees earning below the high-income threshold. The high-income threshold is currently $183,100, but will likely have increased by 1 July 2027. This policy is not yet the law in Australia and non-compete clauses are not currently banned from being included in employment contracts, however it is important that users of this template are aware of this potential change.

Considerations for employees/workers

Employees should understand that the role is time-limited and will end on the agreed date. They should be aware of their entitlements during the contract and at its expiry and seek clarification if the role appears to be ongoing or if a renewal is offered.