An employer’s guide to fixed-term employment

While a fixed-term employee can be highly beneficial for an organisation, businesses should be aware of some of the pitfalls that come with this type of employment. The differences between fixed-term and permanent employment can be confusing when it comes to employment agreements and employee rights and benefits – and getting it wrong could open you to risks. In this article, we’ll go over what fixed-term employment is, and some of the challenges that come along with this agreement type, so you can ensure compliance.

What does the Employment Relations Act 2000 say?

A fixed-term employment agreement is where an employee joins an organisation for a temporary period of time and has a set end date. In New Zealand, the default employment agreement setting is permanent, so if a business wants to use a fixed-term employee agreement, there are certain requirements that they must meet.

Section 66 of the Employment Relations Act 2000 states that an employee and employer should agree the employment will end by a specific date, period of time, when a specific event occurs or at the conclusion of a project. This will vary depending on what your company is using a fixed-term employee for.

Before an employer and employee agree that the employment will end at a specified time, the employer must have genuine reasons based on reasonable grounds for having the fixed-term contract end at that specified time. They also need to advise the employee how their employment will end and the reasons for employment ending at that time.

What should you include in a fixed-term employment agreement?

If both parties agree to fixed-term employment, the agreement must state in writing the way the employment will end; and the reasons for the employment ending at that time. Failing to comply with this means the employee will automatically be seen as a permanent employee and they should be treated as such by the business.

What benefits are fixed-term employees eligible for?

A fixed-term employee is entitled to all the same benefits as a permanent employee, except the fact that one employment is temporary and the other is permanent.

As a fixed-term employee will often be hired for employment less than 12 months, there’s a legal ability in the Holidays Act 2003 to pay annual leave throughout employment instead of accruing it and paying it at the end (as employers are allowed to decline employee requests for leave in advance of their entitlement).

An employer cannot use a fixed-term employment agreement to exclude or limit the rights of an employee under the Employment Relations Act 2000, to use it as a test or trial period; or to exclude or limit the rights of the employee under the Holidays Act 2003.

Purposes of a fixed-term employment agreement

Genuine reasons for fixed-term employment include covering a leave of absence, addressing short-staffing or increased demand during specific periods, like the holiday season, or bringing in extra staff for a particular project until it’s complete.

Pitfalls of a fixed-term employment agreement

Despite some great advantages, there are pitfalls to a fixed-term agreement that organisations should be aware of before proceeding:

• Because the staff member isn’t a permanent employee, it can impact the company culture as it’s harder to build a cohesive team. Especially if the team already has a high turnover rate.
• A fixed-term employee can also raise personal grievances as they have the same rights and responsibilities as a permanent employee. Provided their fixed term is genuine, they can’t then raise a personal grievance simply due to their employment ending at the end of the fixed term.
• If the fixed-term isn’t genuine or there have been faults regarding the management of the fixed-term role, terminating an employee who’s legally no longer (or never was) a fixed-term employee can be risky. They’d be able to raise a personal grievance or unjustified dismissal case as they’re then considered permanent and can’t be dismissed upon a specified date.
• If the fixed-term employee performs work for the employer one day after the original estimated or expected termination date, they’re then considered a permanent employee performing tasks on the same terms and conditions of the previous fixed-term employment agreement.
• If the employee works one day longer than 12 months of continuous employment and they’ve been paid their annual leave as they go, then despite having paid it as they go, they’re entitled to four weeks’ annual leave as set out in the Holidays Act 2003.
• If their annual leave hasn’t been managed correctly the employee is entitled to a double up of their annual leave amount. This is legislated and the employer can’t then seek a repayment from the employee.

While there’s great use for fixed-term staff, employers need to be careful. If mishandled, you could risk a personal grievance or unjustified dismissal case. We know most employers would never intentionally misuse fixed-term contracts, but mistakes do and can happen. That’s where we come in. We know that employment law and compliance can be confusing, especially regarding types of employment and ensuring they are managed properly. So, if any of the information in this article has raised any questions or concerns about fixed-term employment, our team of experts is happy to help. Please reach out to Citation HR for an obligation-free chat to see how we can best help your business.

 About our author

Jessica Husband is an Employment Relations and Health & Safety Consultant at Citation HR. She assists clients with a range of employment relations and compliance matters via the 24/7 HR Advice Line. She has been helping businesses and employers with employment relations for over four years and counting.