Fixed term agreements – do you have genuine reasons?

Agreements, Cases / 19 August 2019
Fixed term agreements – do you have genuine reasons?

A recent Employment Court case, discussed below held that ordinary business risk or the general risk of financial insecurity is not a genuine reason for a fixed term agreement.

Morgan v Tranzit Coachlines Wairarapa Ltd [2019] NZ EmpC 66

Mr Morgan, a school bus driver was employed on successive fixed term agreements during his 18 years service with Tranzit Coachlines Wairarapa Limited (Tranzit).  The reason for the fixed term nature of employment was Ministry of Education funding, which was allocated annually to Tranzit for the role.  Mr Morgan argued that 18 years of contractual stability in terms of the funding undermined Tranzit’s reasoning for the fixed term agreements and did not comply with the requirements of the Employment Relations Act 2000 (Act).

The Act sets out that fixed term employment agreements can only be used for genuine reasons based on reasonable grounds, and must specify the reason, as well as how and when the employment will end.

The Court held that the reason of financial uncertainty here was an ordinary business risk and not a genuine reason for fixed term employment.  The Court also clarified that the fact the fixed term agreement had been extended did not mean it was not genuine.

In short, had Tranzit simply employed Mr Morgan on a permanent basis, it could have made him redundant if funding for his role was lost.

Message for employers

Fixed term agreements need to be used with caution, with the reasons clearly set out.  We have previously discussed the importance of getting it right from the start here.

If you are considering using a fixed term agreement, you must:

  • explain why the role is only for a fixed term;
  • include a genuine reason for the fixed term;
  • specify why the term will end; and
  • give a detailed reason why it will end.

For further advice or assistance with fixed term agreements, please contact our team.

Disclaimer: We remind you that while this article provides commentary on employment law and health and safety topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.

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