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Fixed-term contractors can be real assets to your business. There are many different situations where you may not want to hire another permanent employee. Here, you might instead get a new worker in for a fixed period of time. At the end of the fixed-term, an employee’s employment ends. This makes fixed-term contracts perfect when you have:

  • a project to complete;
  • a seasonal peak; or
  • a vacancy due to an employee taking parental leave.

This article will explain:

  • how fixed-term contracts work; and
  • what you need to know about using fixed-term contracts in your business. 

How a Fixed-Term Contract Works

You should treat an employee on a fixed-term contract in almost every way like a permanent employee. This includes all the rights and obligations associated with being a permanent employee. The key difference is, as implied by the name, a fixed-term employee’s employment will end on a designated date when the fixed-term is over. There may also be slight differences in leave, as a consequence of this fixed-term.

As an employer, if you want to dismiss a fixed-term employee before their fixed period ends, you must go through the same regular process as a permanent employee. You will treat misconduct and poor performance, as employment processes, essentially the same for fixed-term employees compared to permanent employees. Similarly, you will need to ensure that you follow a fair and reasonable process.

Fixed-term employees cannot make a claim for unjustified dismissal if they leave your business after their designated fixed-term has ended. However, the employee may have a reasonable claim against your business if their contract does not specify the reason for the fixed-term agreement, or if the employee has worked beyond the extent of the contract.

Genuine Reason For the Contract Being Fixed-Term

The starting point in New Zealand law is that most employees should be employed on a permanent basis. As a consequence, you need a specific reason to hire an employee on a fixed-term basis. This reason must be a ‘genuine’ reason: in other words, it must have a basis in the business’ circumstances or context. This is to encourage good employment practices. It also aims to avoid employers rolling over their staff on fixed-term contracts year-on-year to avoid normal dismissal requirements.

What a ‘genuine reason’ is depends on the context of the business in question. However, the most common and widely accepted genuine reasons for a fixed-term contract include:

  • to cover for another employee who has taken parental leave. This situation means that you can usual move forward the termination period for the fixed-term employee on parental leave returns early;
  • when a project requires specialist skills that fall outside of your team’s abilities, but when the project itself is temporary or otherwise time-limited; or
  • to provide enough labour for work that the contractor can only complete during certain seasons, like fruit-picking, or to cover seasonal highs.

The law is clear that it is not acceptable to use a fixed-term agreement as a replacement or substitute for a trial period or probationary period. In other words, you cannot use fixed-term contracts to test the suitability or quality of a new employee. You also cannot use-fixed term contracts because a prospective employee is holding (or applying for) a particular work visa.

What to Include in a Fixed-Term Employment Agreement

While fixed-term employment agreements should contain all of the minimum terms of your agreements for permanent employees, there are additional terms that you must include that reflect the fixed-term arrangement. Specifically, a fixed-term employment agreement must state:

  • when or how the employment agreement will end; and
  • the genuine reason for the fixed-term in detail. The explanation would ideally provide the business context or other situation that has resulted in the need for a fixed-term employee.

If you do not include the reason for the fixed-term or associated details in a written employment agreement for a fixed-term employee, the law might see the employee as an permanent employee.

Key Takeaways

Fixed-term employees are like having permanent employees for a limited period of time. They have almost all the rights and obligations associated with being a permanent employee. However, a fixed-term employee’s employment will end on a designated date when the fixed-term is over. It is important to ensure that there is a genuine reason for the employment being fixed-term, and that this reason is spelled out in the employment agreement and made clear to the employee. If you want to know more about fixed-term contracts or contractors, contact LegalVision’s employment lawyers on 0800 005 570, or complete the form on this page.

FAQs

How are fixed-term employees different from permanent employees?

In most cases, the two kinds of employees should be treated the same way, and are treated the same under the law. The main difference is that a fixed-term employee’s employment ends on a particular date. 

When are fixed-term agreements illegal?

When the reason for the fixed-term is not genuine: for instance, you might have an employee who is rolled over on successive fixed-term contracts. This employee would be considered by the law to be a permanent employee. There must be a specific and genuine reason why the employment must be fixed-term.

Can fixed-term employees claim a personal grievance against their employer?

Yes, they can, as all employees are able to. However, they cannot claim an unjustified dismissal if their employment has ended because their fixed-term is over.

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