Some employers have been known to use fixed term employment agreements, in place of permanent employment agreements, where the position is really a permanent one but the employer wants to avoid having to go through the required processes, such as fair disciplinary or dismissal processes, should issues arise with the employee.

Fixed term agreements can be utilized, and enforced in court, but they must follow strict requirements.

In a recent case a well known TV presenter signed an employment agreement with TVNZ under a fixed term of one year for which the presenter would receive $450,000.

In October of that year, with the ostensible expiry date approaching, the presenter met with TVNZ to discuss the prospect of future employment with them.  The presenter was offered an open-ended role; however the salary was to drop by $100,000.

The presenter sought a declaration from the Employment Relations Authority as she argued the salary reduction was unlawful and the employment to be indefinite.

The Authority found in favor of the presenter on her claim and confirmed the fixed term agreement was ineffective as it did not comply with the Act.

The reason the agreement did not comply was that there was no discussion between TVNZ and the presenter specifically regarding the term of the employment and why the employment would end after one year.

In addition, TVNZ did not provide the presenter with legal advice prior to signing the agreement.

To be enforceable a fixed term employment agreement must comply with Section 66 of the Employment Relations Act,
the relevant sections of the Act provide the following key requirements:

An employer and an employee may agree that the employment will end:

(i) on a specified date; or
(ii) on the occurrence of a specified event; or
(iii) at the conclusion of a specified project.

Providing that the employer has genuine reasons based on reasonable grounds for requiring a fixed term agreement and the employee is made well aware of the reasons for the fixed term agreement.

An example of a valid clause is:

“The position is for a fixed term.  The reason for this is that you will be working on a project to develop a web strategy and build a new website.  The project plan for developing this strategy and the site build is attached.  Note that the project will end on 12 November 2008.  At that time, your employment will cease.”

Ultimately, an employer must make a fixed term employment agreement clear from the outset.  Failure to do this may result in the employer having an unwanted permanent member of staff or unnecessary legal conflict.