Implications of new limitations on fixed term contracts for charities and not-for-profits

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 (Cth) (Bill) passed both houses of Parliament in December 2022 and is now law. Among other changes to the Fair Work Act 2009 (Cth) (FW Act) (discussed previously here), the Bill introduced new limitations on fixed term contracts that are set to take effect on 7 December 2023 (discussed previously here).

The limitations apply broadly to employers covered by the FW Act. This article considers the specific implications of the new limitations on fixed term contracts for employers who are charities and not-for-profits given the prevalence of the use of fixed term and specific duration employment arrangements in the sector.

What limitations on fixed term contracts will apply?

New provisions in the FW Act will make it an offence, subject to some exceptions, for an employer to enter into a fixed term contract with an employee:

• for a period that exceeds two years;

• that allows the contract to be extended or renewed for a period that exceeds two years;

• that provides for an option or right to extend or renew the contract more than once; or

• where the contract continues the same, or substantially similar, employment relationship and work duties as a previous fixed term contract, and:

  • the contract and previous fixed term contract exceed two years in length;
  • the contract or previous fixed term contract contains a right of renewal or extension; or
  • the employee has previously been engaged under two consecutive fixed term contracts.

There are a range of exceptions to the limitations on fixed term contracts (listed in full here) including two that are of particular relevance for charities and not-for-profits – governance positions and funded positions.

Exception: Governance Positions

The new limitations on fixed term contracts will not apply to any contract of employment that relates to a governance position where a time limit is imposed on the position by the governing rules of the corporation or association.

This exception may enable a charity or not-for-profit to enter into a fixed term contract with an employee that has a “governance position” in the organisation, if a time limit for that position is specified in the organisation’s Constitution or Rules. The term “governance position” is not defined in the legislation or explanatory memorandum. We expect that there will be judicial consideration of the term if and when there are challenges to an employer’s reliance on this exception, but that guidance is still some time away. It may be possible that the term means an individual that is a voting member of the Board or Committee noting that the legislation does not go as far as to define the term in that way. If that was the case, the exception may be capable of applying to employees that have an ex officio role on the Board or Committee such as executive Directors, some school principals (in the case of a school) and some religious ministers (in the case of a faith-based institution). However, given the complexities arising with applying this exception and consequences for breach, further legal advice should be obtained where it relates to a specific organisation and its employment arrangements.

New anti-avoidance provisions under the Bill will prohibit employers from “changing the nature of work” or “otherwise altering an employment relationship” in order to avoid the new limitations on fixed term contracts. Accordingly, employers should seek advice before:

• introducing fixed terms for governance positions where the Constitution or Rules did not previously provide for a fixed term for that position; or

• seeking to characterise a position as a “governance position” if the individual does not have a genuine governance role in the organisation.

Exception: Funded Positions

The new limitations on fixed term contracts will not apply to any contract of employment that relates to a position for the performance of work where:

• the position is funded in whole or in part by government funding or funding of a kind prescribed by the regulations (noting that no regulations have been prescribed for this purpose to date);

• the funding is payable for a period of more than 2 years; and

• there are no reasonable prospects that the funding will be renewed after the end of that period.

This exception may provide a basis for not-for-profit and charity employers that receive government funding for positions to lawfully appoint persons to those positions for fixed terms that exceed two years in duration (provided that all the criteria to be met for the exception to apply are satisfied). The legislation and explanatory memorandum does not include any guidance as to how the prospects of funding renewal should be assessed. This assessment will depend on the circumstances and it may be prudent to seek advice.

How we can help

Our For Purpose team helps charities from the ground up, from support to apply for registration to amending governing documents. If your charity has made appointments to positions for fixed terms, we can assist you to navigate the new limitations on fixed term contracts that will take effect on 7 December 2023 and the exceptions to those limitations discussed in this article.

Contact us

Please contact us for more detailed and tailored help.

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