A founder with eighteen months of runway offers a new engineer a two-year contract “to be safe”, with an option to extend if the next round lands. It feels prudent — the company only commits to what it can fund, and everyone knows where they stand. Under the Fair Work Act, that option to extend may have just made the contract unlawful: the end date is void, the engineer is an ongoing employee, and when the contract “expires” and isn’t renewed, the company has dismissed someone — with notice, potential redundancy pay, and unfair dismissal exposure it thought it had contracted away.
The rules doing this work are Division 5 of Part 2-9 of the Fair Work Act 2009 (Cth) — sections 333E to 333L — inserted by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 as part of the same reform package that reshaped bargaining and pay secrecy. They apply to fixed-term contracts entered into on or after 6 December 2023, and nearly three years in, startups are still signing contracts that breach them.
The Three Prohibitions
Section 333E targets employment contracts that terminate at the end of an identifiable period. That language is deliberately wide: it captures true fixed-term contracts and the more common “maximum-term” contract that runs to an end date but lets either party terminate earlier on notice. Casual employees are excluded. For everyone else, a contract is prohibited if it fails any of three limbs:
- Duration. The contract’s term — including any extension or renewal options — is more than two years.
- Renewals. The contract can be extended or renewed more than once, regardless of total length.
- Consecutive contracts. The contract follows a previous fixed-term contract for the same or substantially similar work, with substantial continuity of the employment relationship, and any of four triggers is met: the combined terms exceed two years, the new contract can be renewed, the previous contract could be renewed, or the previous contract was itself the second in a chain of consecutive fixed-term contracts for that work.
The third limb is the one that catches startups running rolling twelve-month contracts. Each individual contract looks compliant; the sequence is what breaches the Act — two clean twelve-month contracts may scrape through at exactly two years, but the third contract in the chain is prohibited regardless of length. And a contract signed before 6 December 2023 can count as the “previous contract” in that assessment — the chain doesn’t reset at commencement.
The Exceptions That Matter for Startups
Section 333F contains the exceptions, and founders should read them narrowly, because that is how they are written. The ones with real startup application:
- High income earners. The limitations don’t apply where the employee earns above the high income threshold for the year the contract is entered into — $190,100 from 1 July 2026, indexed annually. Senior engineering, executive and CTO-level hires can often still be engaged on longer fixed terms.
- Government-funded positions. A genuine escape valve for grant-funded roles — but conditional: the position must be funded wholly or partly by government funding, the funding must be payable for more than two years, and there must be no reasonable prospects the funding will be renewed. A role tied to a two-year grant doesn’t qualify; the funding period must exceed two years.
- Specialised skills. The employee is engaged to perform only a distinct and identifiable task involving specialised skills — a defined integration build, not “we need a good developer for a while”.
- Peak demand, temporary absence, training. Essential work during a peak demand period, cover for another employee’s temporary absence (parental leave cover is the classic case), or engagement under a formal training arrangement.
- Governance positions with a time limit set by an organisation’s governing rules, and situations where a modern award permits the arrangement.
Regulations also carve out limited sectors — organised and high-performance sport on an ongoing basis, with temporary exceptions for charities, not-for-profits and medical research funding running to 1 November 2026 (now subject to conditions including employer revenue caps) — but these rarely help a venture-backed company. Note what is not on the list: “we might run out of money” is not an exception. Funding uncertainty is the startup condition, and Parliament declined to accommodate it.
What Happens When You Get It Wrong
The consequence, under section 333G, is surgical: the term providing that the contract ends on the end date has no effect, while every other term remains valid. The employee doesn’t get a void contract — they get a permanent one, on the same salary and terms. That conversion cascades:
- Expiry becomes dismissal. Letting the contract “run out” is now a termination at the employer’s initiative, opening the door to unfair dismissal claims that a genuine fixed-term expiry would ordinarily not.
- Notice and redundancy pay apply. The exclusions for employees engaged for a specified period fall away, so statutory notice and, where the role is genuinely disappearing, redundancy pay under the National Employment Standards are in play.
- Civil penalties. Contravening the limitations is a civil remedy provision, enforceable by the Fair Work Ombudsman, with penalties per contravention that multiply across a team hired on the same template.
Section 333H closes the workarounds: terminating and re-hiring after a gap, delaying re-engagement, changing the nature of the work cosmetically, or substituting a different person into substantially the same role to avoid the limits are all prohibited. Disputes can go to the Fair Work Commission under section 333L.
There is also a paperwork obligation with teeth: under section 333K, every employee entering a fixed-term contract must be given the Fair Work Ombudsman’s Fixed Term Contract Information Statement — before or as soon as practicable after signing, every time, even where an exception applies. It sits alongside the general Fair Work Information Statement, and missing it is a separate contravention.
The Real Fix: Stop Defaulting to Fixed Term
Most startups reaching for a fixed-term contract are solving a problem it doesn’t actually solve. If the concern is performance risk, a permanent contract with a well-drafted probation period aligned to the minimum employment period for unfair dismissal — six months, or twelve months for small business employers with fewer than 15 employees — does the job. If the concern is runway, a permanent contract costs you almost nothing extra — early-stage redundancy pay is modest (and genuine small business employers with fewer than 15 employees are generally exempt), while an unlawful fixed term costs you the certainty you thought you’d bought. Reserve fixed terms for the cases the Act actually blesses: parental leave cover, a defined specialist project, a long-funded government grant role, or a hire above the high income threshold.
The Bottom Line
The two-year cap is not a technicality — it rewires the default assumptions behind every fixed-term offer letter in your template folder. Audit what you’re using: anything over two years, anything with two extension options, and any rolling renewal chain is presumptively unlawful, and the person holding it is probably a permanent employee already. The startups that get burned are the ones that discover this at the end of the contract, in a dispute; the ones that don’t are the ones that fixed the template first.
This article is general information only, not legal advice — whether a fixed-term arrangement is lawful depends on the contract, the work and the exceptions available. Viridian Lawyers advises Australian startups on employment contracts, ESOPs and hiring compliance. If your offer templates predate December 2023, get in touch.
