Fixed-term employment contract key clauses for Australian employers

You have a position to fill for a defined period — a parental leave cover, a project-specific role, a peak season hire. A fixed-term or maximum-term contract seems like the obvious vehicle. You pull up a template, drop in the dates, and move on.

That approach has real consequences after 6 December 2023, when significant changes to the Fair Work Act 2009 (Cth) came into force under the Secure Jobs, Better Pay reforms. The Act now imposes hard limits on how employers use these contracts, and a poorly drafted agreement can be treated by a court or tribunal as ongoing employment — stripping away the certainty the contract was meant to provide. Understanding what each clause does, and the drafting choices that matter, is the difference between a contract that works and one that creates the problem it was designed to solve.

What fixed-term and maximum-term contracts are

Both contract types engage an employee for a defined period rather than indefinitely. The critical operational difference is what happens before the end date.

Under a maximum-term contract, either party can terminate the employment with notice before the agreed end date. This gives the employer more flexibility — if the project wraps early, or the relationship is not working out, the contract can be brought to a clean end without the complexity of a breach claim.

Under a fixed-term contract, the employment runs for the full specified period. Early termination by the employer, outside of limited circumstances such as redundancy or serious misconduct, can expose the business to a claim for wages the employee would have earned through to the end date. An employee who leaves early may similarly owe the employer compensation for breach.

For most small-to-medium businesses, a maximum-term structure is the more practical choice.

The term clause: length and the statutory cap

The term clause sets the start date, the end date, and whether the arrangement can be renewed or extended.

Since 6 December 2023, the Fair Work Act 2009 (Cth) imposes three overlapping limits on fixed-term and maximum-term contracts where no exception applies:

• The contract cannot run for longer than two years, including any extension or renewal option.
• The contract cannot include an option to extend or renew more than once, even if the total period remains under two years.
• An employer cannot engage the same employee under two or more consecutive contracts to perform the same or substantially similar work where there is substantial continuity of the employment relationship between the end of the first contract and the start of the next.

If a contract breaches any of these limits, the prescribed end date is void — the employment is treated as ongoing. Failing to comply can also attract civil penalties.

The rules also prohibit employers from engineering around the limits — for example, terminating employment for a short gap and then re-engaging the employee in the same role. The substance of the arrangement, not just its form, is what counts.

Drafting trap: Including a standard renewal option clause without checking whether the cumulative term would exceed two years. A clause that reads "with option to extend for a further 12 months" can push a 15-month contract over the cap.

Exceptions: when the limits do not apply

The two-year limit and consecutive contract rules do not apply in certain circumstances. These exceptions are set out in the Act and supporting regulations, and should be assessed before drafting rather than assumed. The Fair Work Ombudsman lists each exception in detail.

The main exceptions are:

• High income: The employee's earnings are above the high income threshold for the financial year in which the contract is entered into. From 1 July 2025, this threshold is $183,100.
• Modern award: A modern award that covers the employee expressly permits fixed-term or maximum-term contracts of longer duration.
• Governance role: The employee holds a position with a time limit specified in the rules of a corporation or association (such as a board-appointed officer with a fixed tenure).
• Specialised skills: The role requires specialised skills to complete a specific task, and the contract is entered into for that purpose.
• Seasonal work: The employee is engaged primarily to perform work during a peak demand period.
• Temporary absence: The employee is engaged to fill a position vacated by another employee on an approved leave of absence.
• Government-funded position: The role is wholly or partly funded by government, the funding is for a period of more than two years, and there is no reasonable prospect of further funding after that period.
• Training arrangement: The employment is part of a formal training arrangement, such as an apprenticeship or traineeship.

Where an exception applies, it must be documented — ideally in the contract itself. Do not rely on an unrecorded assumption that an exception applies.

The termination clause

The termination clause sets out how and when the employment relationship can be brought to an end before the scheduled finish date.

For a maximum-term contract, this clause is the mechanism that enables early exit. It should specify:

• That either party may terminate the employment before the end date by giving written notice.
• The applicable minimum notice period (see below), or a longer period that the parties agree to.
• Whether payment in lieu of notice is permitted, and on what basis.

For a fixed-term contract, a termination clause is still necessary but more limited. Grounds for early termination by the employer are typically confined to redundancy or serious misconduct. Including a wide discretionary termination power can undermine the fixed-term nature of the contract and expose the employer to a claim for the balance of wages.

Trap to watch for: Omitting any termination clause on the assumption that the contract simply runs to its end date. If the employment relationship deteriorates and no early-exit mechanism exists, the employer may be required to continue paying the employee — or pay out the remainder — even where performance is poor.

Minimum notice periods

Where a maximum-term contract includes a termination clause, the minimum notice periods under s 117 of the Fair Work Act 2009 (Cth) set the floor. These are National Employment Standards entitlements that cannot be contracted out of.

Employees who are over 45 years of age and have completed at least 2 years of continuous service are entitled to one additional week of notice on top of the applicable minimum.

When setting the notice period in the contract, account for any earlier period of employment with the same employer. A parental leave cover engaged for 12 months, then extended for a further 6 months, has more than one year of continuous service — making the minimum 2 weeks, not 1 week.

Longer contractual notice periods are lawful and often sensible for senior or specialised roles where finding and briefing a replacement takes time.

The Fixed Term Contract Information Statement

From 6 December 2023, employers must give every employee engaged under a new fixed-term or maximum-term contract a copy of the Fixed Term Contract Information Statement issued by the Fair Work Ombudsman. This must be provided when the employee enters the contract, or as soon as practicable afterwards.

This is a standalone obligation that sits outside the contract document itself, but it is one the employer must discharge at each engagement. Employers also remain obligated to provide the standard Fair Work Information Statement to all new employees.

Drafting choice: Including a clause in the contract confirming that the Fixed Term Contract Information Statement has been provided, and asking the employee to acknowledge receipt. This creates a record and helps demonstrate compliance.

The role description and scope clause

The role description matters more in a fixed-term contract than in a permanent one. Because the Act's consecutive contract rules turn on whether the employee performs "the same or substantially similar work" across successive engagements, a vague or overly broad scope clause can make it harder to argue that a second engagement involves genuinely different work.

Key things to include:

• A specific description of the duties and, where relevant, the project or purpose the role serves.
• Reference to the exception that applies, if any (e.g., "engaged to cover the absence of [name] during parental leave").
• The reporting line and working arrangements.

Avoid role descriptions that simply mirror the employee's previous engagement with minor cosmetic changes.

Probation clauses

Probation clauses are less common in fixed-term and maximum-term contracts, and often unnecessary for short engagements. Their main purpose is to allow either party to exit with reduced notice during an initial period — but for a maximum-term contract, the termination clause already provides an exit mechanism.

Where the engagement is longer — say, 18 months or more — a probation period may be worth including to manage the risk of a poor fit early in the term. If a probation clause is included, make sure it:

• States a specific end date for the probation period.
• Sets out the notice period that applies during probation.
• Complies with any shorter notice provisions in a relevant modern award.

Optional and situational clauses

Depending on the nature of the engagement, these clauses are worth considering:

• Confidentiality: Essential for roles involving access to sensitive commercial information, client data, or proprietary systems. Unlike restraint of trade clauses, properly drafted confidentiality obligations generally survive the end of the contract.
• Intellectual property assignment: Where the employee will create works, code, designs, or materials during the engagement, an IP assignment clause ensures those vest in the employer — do not rely on the default position alone.
• Restraint of trade: If preventing the employee from joining a competitor or soliciting clients after the engagement matters to your business, a restraint clause needs to be carefully drafted and proportionate to be enforceable.
• Extension mechanism: Where you anticipate wanting to extend the engagement, set out the process clearly — either a right to issue a new contract or a mechanism to vary the existing one by agreement. Avoid a clause that automatically extends the term, as this can trigger the Act's renewal limits.
• Survival clause: Identifies which obligations (confidentiality, IP assignment, restraints) continue after the contract ends.

How Artificer Legal can help you get this right

Fixed-term contracts look straightforward but carry a number of traps that only become apparent when something goes wrong — a dispute about whether an exception applies, a breach claim when early termination is needed, or an unintended shift to ongoing employment because the limit rules were not properly mapped before the contract was drafted.

When we review or draft a fixed-term or maximum-term employment contract, we focus on:

• Determining the right structure — whether a fixed-term or maximum-term contract is appropriate, and whether a fixed-term arrangement is actually the right vehicle at all given the role's likely duration and the employer's exit needs.
• Confirming whether an exception applies — and documenting it within the contract so there is no ambiguity if the arrangement is ever scrutinised.
• Reviewing cumulative duration — across any prior engagements with the same employee, to check whether the consecutive contract rules are engaged.
• Drafting a termination clause that works — with appropriate notice periods, payment in lieu provisions, and early exit grounds that do not inadvertently convert the contract to a permanent arrangement.
• IP and confidentiality protection — particularly for roles involving client-facing work, technical development, or access to commercially sensitive information.

If you are about to engage a fixed-term or maximum-term employee, or you have an existing contract that is due for renewal, contact Artificer Legal before the paperwork is signed.

The clause that most often causes problems

The termination clause — or more precisely, its absence — is the single point of failure in most fixed-term contract disputes. Employers assume the contract simply ends on the agreed date and no further action is needed. That assumption is wrong in two directions: it ignores the Act's limits on whether the date is enforceable at all, and it leaves the employer without a mechanism if the relationship breaks down before the date arrives.

A well-drafted fixed-term or maximum-term contract should: set a defined term that complies with the Act's two-year and consecutive-contract limits (or correctly invoke an applicable exception); include a workable early-exit mechanism with notice periods that meet the National Employment Standards minimums; describe the role with enough specificity to differentiate a genuine new engagement from a rolled contract; and be accompanied by the Fixed Term Contract Information Statement at or before the time of signing. Getting these elements right at the drafting stage removes the uncertainty that makes fixed-term contracts riskier than they need to be.