Fixed Term Contracts in Australia: What Every SME Needs to Know Before Your Next Hire
By Vas Papadopoulos, Principal Consultant, HR Excellence Partners
For many Australian small and medium businesses, fixed term contracts have been the go-to option – for projects, parental leave cover, or simply because the future workload was uncertain.
But the rules have changed, and a recent Fair Work Commission decision shows just how costly getting it wrong can be.
If your business uses fixed term contracts – or is thinking about it – now is the time to get across the rules.
The case every employer should know about
In July 2026, the Fair Work Commission handed down a decision in Medrano v The Hero Corporation Pty Ltd [2026] FWC 2546.
A designer started on a short fixed term contract. The agency extended it three times. Over the course of his employment, he worked on 44 projects for 24 clients – work the agency itself admitted it “regularly undertakes.”
When the final contract reached its end date, the employer argued employment had simply expired.
The Commission disagreed.
The employer tried to rely on an exception for employees engaged to perform “only a distinct and identifiable task involving specialised skills.” The Commissioner rejected this – the designer’s work wasn’t a one-off specialist task, it was ordinary, recurring business work spread across dozens of clients.
Because the arrangement exceeded the legislative limits and no exception applied, the contract’s expiry clause was found to have no legal effect. The employment was treated as ongoing – which meant the end of employment was a dismissal, not a contract simply running its course.
The Commission hasn’t yet ruled on whether that dismissal was unlawful – that’s the next stage. But the case already makes one thing clear: you can’t keep extending a fixed term contract and assume the expiry date will protect you.
Why the rules changed
The Secure Jobs, Better Pay reforms were introduced to stop businesses using rolling fixed term contracts for what was really permanent work – trading off job security for administrative convenience.
The rules commenced 6 December 2023 and sit within the National Employment Standards, under Division 5, Part 2-9 of the Fair Work Act 2009 (Cth).
The rules, made simple
Generally, you cannot:
- Use a fixed term contract lasting longer than two years, or
- Offer more than two consecutive fixed term contracts for substantially the same role – including where contracts are repeatedly renewed or extended.
If you breach this, the clause ending employment on a set date may simply not apply. In practice, the employee becomes an ongoing employee.
When a fixed term contract is still fine
Fixed term contracts remain a legitimate tool. Common valid examples:
- Replacing an employee on parental leave
- A genuine project with a defined end date
- Seasonal work
- Certain government-funded roles
- Some apprenticeships or training arrangements
- Situations covered by a specific legislative exception
The real question isn’t whether you can use a fixed term contract – it’s whether your reason for using it actually fits the legislation.
Four examples that show the difference
Covering parental leave – Sarah is employed for 12 months while another employee is on leave. The contract clearly ends when the substantive employee returns. Appropriate.
A defined project – A civil engineering firm wins a 16-month infrastructure project and hires a Project Engineer for it specifically. When the project ends, so does the role. Appropriate.
The six-month rollover – A café keeps its Operations Manager on rolling six-month contracts “to see how things go.” Two years and multiple renewals later, the role hasn’t changed and the business still needs it. This is exactly what the legislation targets.
The Hero Corporation case – Ordinary, recurring business work across dozens of clients, repeatedly extended. The FWC found the employer couldn’t rely on the expiry date. If the work is ongoing, the employment may be too.
Common mistakes SMEs make
- Repeatedly extending six or twelve month contracts
- Assuming an expiry date automatically ends employment
- Using fixed term contracts as a substitute for probation
- Keeping people on temporary contracts because it’s administratively easier
- Never reviewing existing contracts after the law changed
None of these hold up under the current rules.
What’s at risk if you get it wrong
- The expiry clause becomes ineffective
- The employee is treated as ongoing
- Unfair dismissal or general protections claims
- Legal costs and management time
- Reputational damage
For most SMEs, the cost of getting advice before issuing a contract is far less than the cost of defending a claim afterward.
Five questions to ask before your next fixed term offer
- Is there a genuine reason this role must end?
- Is this person replacing someone temporarily?
- Is it tied to a genuine project with a defined completion date?
- Have I already renewed this employee’s contract before?
- Would a permanent contract actually be the better option?
If you’re not confident answering all five, get advice before making the offer.
How HR Excellence Partners can help
Employment contracts aren’t something you can safely download and hope for the best with anymore. Every contract should reflect your business, your industry, the relevant Modern Award, and the National Employment Standards.
I help Australian SMEs:
- Prepare legally compliant employment contracts
- Review existing fixed term contracts
- Decide whether a role should be permanent or fixed term
- Stay Modern Award and Fair Work compliant
- Review employment documentation as part of an HR Health Check
- Reduce employment risk before it becomes a problem
A proactive review today could save your business thousands of dollars – and a lot of stress – down the track.
Final thoughts
Fixed term contracts are still a useful workforce planning tool. But they’re no longer something you can renew indefinitely and assume you’re covered.
The Medrano decision is a clear reminder: if a role is genuinely ongoing, the law may treat the employment as ongoing too – regardless of what the contract says.
If your business has staff on fixed term arrangements, now’s a good time to check they’re still compliant.
Book your free HR Health Check with HR Excellence Partners.
References
- Fair Work Ombudsman, Fixed term contracts: fairwork.gov.au/starting-employment/types-of-employees/fixed-term-contract-employees
- Fair Work Ombudsman, National Employment Standards: fairwork.gov.au/employment-conditions/national-employment-standards
- Fair Work Act 2009 (Cth), Part 2-9, Division 5
- Medrano v The Hero Corporation Pty Ltd [2026] FWC 2546 (7 July 2026)
- Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth)
