The ability to employ staff on a fixed term basis can be very useful. However as most of you will be aware, there have long been restrictions on the ability of employers to enter into enforceable fixed term employment arrangements.
This was the case under the Labour Relations Act 1987 and even under the Employment Contracts Act 1991 although fixed term employment was not specifically referred to in either of these statutes.
Prior to 2000, fixed term contracts were not enforceable in certain circumstances, for example if they did not genuinely relate to the operational needs of the employer, or if the employer could not show that there was a genuine reason for the fixed term or if the purpose of the fixed term was to deprive the employee of personal grievance procedure. The justification for these restrictions was and still is to maintain employee protections against unfair dismissal and to meet New Zealand's ILO obligations.
Since 2000 the law around fixed term employment has been governed by Section 66 of the Employment Relations Act 2000 ("the ERA") and the following is a short reminder of its provisions.
Section 66(1) of the ERA provides that an employee and employer can agree that the employee's employment will end on a specified date or at the occurrence of a specified event or at the conclusion of a specified project. The clear implication here that open ended "temporary" employment is not acceptable; it must be clear what will trigger the end of the employment, be it the passing of time, the completion of a project or the occurrence of a specific event. Is not sufficient to specify that employment will continue as long as the employee is required or as in Yukich v Allied Work Force North Ltd 11/1/08, AA3/08, for a period that the employer's client may require.
Section 66(2) of the ERA also states that before an agreement to fixed term employment can be reached the Employer must have genuine reasons based on reasonable grounds for the fixed term and must also advise the employee of both the details of and the reason for the fixed term. Reasons which are stated in Section 66(3) as not being genuine for the purposes of the Act are to exclude or limit the employee's rights under either the ERA or the Holidays Act 2003 or to establish the suitability of the employee for permanent employment.
It is not hard to think of genuine reasons for fixed term employment arrangements; Parental Leave, seasonal work, the completion of particular specific projects, an impending change to work arrangements, such as the arrival of a new piece of equipment may all give rise to genuine reasons for fixed term employment. Economic uncertainty may also be a genuine reason for a fixed term but not in all circumstances. In McCarthy v Television NZ Ltd 5/6/02, AA169/02, the employee had worked for the company as a contractor for 2 1/2 years and was then employed on a fixed term for 6 months. The reason given by the company for the fixed term was that the future of the workflow was uncertain. The employee disputed that this was a genuine reason however the Authority did not agree. It found that the fixed term in question was the first time an employee position had been offered for that particular work and that the company intended to make a decision about future work arrangements during the term of the fixed term contract.
Where there has been an ongoing perception that redundancies are imminent leading to multiple fixed term agreements the Authority is much less likely to find that economic uncertainty is a genuine reason. This was the case in NZ Merchant Services Guild Inc v Pacifica Shipping (1985) Ltd 24/8/01, G Wood (member), WA26A/01, where a number of employees had been employed on fixed-term contracts for up to 2 years. The employer's reason for the fixed-term contracts was that it thought it may soon need to reduce the number of ships it operated. The Authority found that the impending redundancy situation had been in place for 3 or 4 years and because there was no indication that it would change in the short term the company could not say it was a genuine reason for employing staff on fixed-term contracts.
Under section 65(1) of the ERA all employment agreements must be in writing. Section 66(4) of the ERA further requires that once the parties have agreed to a fixed term agreement both the fact of the fixed term and the reasons for it must be stated in the employees written Employment Agreement. In the normal course of things agreement to a fixed term would be indicated by both parties signing the written Employment Agreement, however in Yeates v Jetstick Ltd 10/9/08, AA320/08 the Authority found that there was a valid fixed term agreement even though the employee had not signed the written employment agreement and claimed that he had deliberately not done so because he did not agree to the fixed term. The Authority found as a matter of fact that, at the start of the employment, both parties had intended the employment to be for a fixed term and that notwithstanding the employee's subsequent change of mind and failure to sign the agreement, the agreement nevertheless met the requirements of the legislation. It would be dangerous to think however that an unsigned written Employment Agreement on its own and without evidence of mutual agreement to a fixed term would usually be sufficient to meet the Act's requirements.
Section 66(5) makes it clear that failure to comply with the provisions of the legislation will not affect the validity of the employment agreement between the parties. The employment relationship will continue notwithstanding any failures in relation to fixed term. However Section 66(6) states that if an employer does not meet the requirements of Section 66(4) the employee can choose to treat the employment as being for an indefinite period. Any dismissal based on a poorly drafted or verbally agreed fixed term will therefore create a serious risk of a claim for unjustified dismissal. If you have any doubts about the validity of your fixed term or temporary employment agreements we are here to help and can assist you in assessing whether your fixed term agreements are robust. Even if at the start of the relationship all parties agreed verbally that employment was to be for a fixed period, if the written requirements are not met such verbal agreements will not be sufficient to be binding. We would suggest that in such circumstances you obtain legal advice about whether your Agreement meets the requirements of the Act and how to proceed if it does not.
There is also a risk in letting fixed term employment continue after the termination date without revisiting the requirements for a fixed term. If employment runs on past the agreed termination date especially for an extended period, the fixed term provision will no longer be meaningful and the employee will likely be able to treat the employment as being for an indefinite period. Any subsequent termination would then need to be for cause and follow proper process.
It is essential that fixed term Individual Employment Agreements are drafted accurately so that both parties can rely on them. This means getting the reason for the fixed term drafted accurately and clearly and making sure all clauses are consistent with the term specified.
All this highlights why it's important to consult with us regarding your employment arrangements to ensure that they accurately record the terms and conditions of employment and you steer clear of potential pitfalls.
Rachel Brazil
Senior Solicitor
rachel@osea.org.nz
03 455 5165
These articles and much more available in the latest Update - The Official OSEA Magazine
