• Trish Hall

Fixed-term employees

Updated: Mar 8

You've been in business a while now, you've managed high performing teams before, you know the in's and out's of hiring staff and that employment law course you did back in '08 gave you a great headstart in understanding employment agreements - individual, collective, contract for services.

Let's refresh what you may or may not know. There are certain criteria you need in a fixed-term employment agreement. Let's start with the technical and then we'll look at reasons for having a fixed-term agreement.

Firstly, your fixed-term employment agreement must have a clear start date and be very clear on how or when it will end (this could be at a date or period, on the occurrence of a specified event or project). It's risky business to leave this open-ended - shoot down the bottom for why.

Secondly, your fixed-term agreement must refer to the Employment Relations Act, clause 66 to be exact. You want to avoid any doubt that this is a permanent employment agreement.

Thirdly, your fixed-term agreement must specify the genuine reasons based on reasonable grounds for starting and ending in that way. Did I just hear you say "huh"?

Let me clarify. The Employment Courts have been very clear that you can't just hire staff willy nilly on fixed-term agreements and that you must have a legitimate reason. This is best explained by the use of examples, see the list below that should safely meet the criteria:

  • Seasonal demand for more employees.

  • Industries where work is of a seasonal nature e.g., fruit picking or the meat industry.

  • Filling a position while advertising, interviewing and appointing a permanent employee.

  • Covering for an employee on secondment.

  • Covering for an employee on parental leave or another type of leave.

  • Allowing the employee time to consider whether to exercise an option to purchase the employer's business.

  • To maintain "agreed manning levels" pending decision as to the final configuration of the business.

  • To fill a position during a restructuring and appointment process.

  • To meet statutory requirements e.g., The State Sector Act requires Chief Executive appointments to be for a fixed term.

  • To trial a project.

Now let's look at some reasons that are prohibited.

  • To exclude or limit the rights of the employee under the Employment Relations Act

  • To establish the suitability of the employee for permanent employment.

  • To exclude or limit the rights of an employee under the Holidays Act.

There are a few fish hooks that you need to be cautious of. For instance if you have a fixed-term agreement to cover parental leave you should consider the possibility of the permanent incumbent returning early and what impact that might have on the roles. You can add some things to your agreement to give you options.

Also, if your reason is to cover sick leave and that sick employee isn't able to return to work there will be implications on the fixed-term employee, all depending on your agreement and what's been said. If for example, your fixed term agreement is open-ended and does not clearly define when the agreement comes to an end you might find the fixed-term employee has an entitlement to be permanently employed. If you're covering a period of absence it is best to have an end date so the period is clearly defined.

There are also holiday implications to be aware of. For a fixed-term agreement for less than 12 months, you can pay your employee 8% of their gross earnings as a "pay-as-you-go" method. You can pay this at the end of the term and in the event they become a permanent employee you can get payroll to convert this into accrued leave so the can take annual leave at 12 months (or sooner if you agree).

To keep you on the straight and narrow come ask me for some help.