Fixed-term contracts can be a good way of hiring someone if you don’t need a permanent staff member. For instance, there might be a special project or an event that you need help with for a certain time. They’re ideal for businesses that need seasonal workers in the agriculture or tourism sector and for covering parental leave.
Watch out though, they come with specific requirements that must be complied with.
Like all contracts, a fixed-term employment agreement must set out the expectations clearly and there must be genuine business reasons. Failing to get this right at the beginning could get you in hot water with the Employment Relations Authority (ERA) if it considers the termination of the employment to be unjustified.
What needs to be in a fixed-term employment agreement?
The employer and employee must agree how the employment will end, either:
- at the close of a specific date or period
- on the occurrence of a specified event
- at the conclusion of a specified project.
It must be genuine
The Employment Relations Act requires employers to have genuine reasons, based on reasonable grounds, for employing someone on a fixed-term basis. These contracts cannot be used for trial or probationary periods – that’s what the 90-day trial period is used for.
What happens if the need changes?
Despite best efforts, projects can take longer to complete than initially thought: seasons can run longer; permanent employees can stay away longer; and businesses can decide they have an ongoing need for a particular role. If your business decides to keep your employee beyond the initial term, there are several ways you can do this.
- Vary the terms by consulting with your employee and providing a letter of variation additional to the original employment agreement.
- Renew the term – by creating a new employment agreement with a new fixed term period.
- Offer your employee a permanent role.
The key takeaway here is, you must decide what you want to do before the employment comes to the end of its term, and you must communicate with your employee. If the fixed term ends and you do nothing, and the employee continues working for you, they will automatically become a permanent employee.
| Key Takeouts |
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The reason for the fixed term must be genuine and reasonable. |
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The reason for the fixed term must be explained in the employment agreement. |
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The employment agreement must state the date or event on which the term comes to an end; or the term for which the agreement will run. |
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If the term comes to an end, but the employee keeps working, they automatically become a permanent employee. |