Fixed term contracts – funding reasons not reasonable…

The Employment Court has held that a fixed term contract for an employee was not based on reasonable grounds.  The employer held a contract for the provision of services, but this was subject to yearly renewal.  The employer claimed that, because it did not know from year to year whether it would be given a new contract, meant it could have a fixed term for its employees working on that contract.

The Court held that even though the financial uncertainty of the new contracts was genuine, the specifying of a fixed term was not based on reasonable grounds.  If the contract was not won in a year the employer would merely have to follow a redundancy process.  The lack of certainty over funding from year to year was no different to any other employer who has to be financially stable to keep employing its employees.  Allowing fixed terms based on financial uncertainty of the business would undermine the restrictions on allowing fixed term contracts to be only for genuine reasons, based on reasonable grounds.

The Court also said that the mere rolling over multiple times of the fixed term contract does not make it a non-genuine reason for a fixed term, but will be a flag to the Court the need for scrutiny of the reasons given.

As the fixed term clause was held not to be based on reasonable grounds, the employee was deemed to be a permanent employee.  His employment could therefore not come to end just by the end of the fixed term.



Alan Knowsley
Employment Lawyer
Wellington