Working around redundancy: Fixed term contracts to avoid redundancy
COVID-19 has introduced a lot of financial uncertainty for employers. It is unclear for many employers how quickly their businesses will recover, especially as there are no guarantees that the country, or particular regions, wont again enter higher alert levels.
Fixed term employment agreements may seem like the perfect solution as they set a clear end date for employment. For an employer who is unsure whether they will have work for an employee in the future, this is an obvious advantage. However, as the recent case of Kwik Kiwi Cars Limited v Crossley [2020] NZEmpC142 makes clear- a fixed term agreement is not an alternative to a fair redundancy process.
Ms Crossley was offered fixed term employment in the context of a business merger. Rather than deciding its staffing needs upfront, Kwik Kiwi decided to offer fixed term employment initially, then later decide what permanent roles were required. Once the merger had taken place the employer decided that Ms Crossley’s position was surplus to requirements. Rather than undertaking a restructure, it relied on the fixed term agreement and argued that Ms Crossley’s employment automatically terminated at the end of the fixed term.
However, a fixed term agreement will not be enforceable unless it meets the requirements of section 66 of the Employment Relations Act 2000. This section requires employers to have “genuine reasons on reasonable grounds” before employment can be fixed term in nature.
The Employment Court held that Kwik Kiwi had not met the requirements of section 66 for two reasons. Firstly, the reason for the fixed term agreement was not genuine because it had the effect of bypassing the protections of the redundancy regime which would otherwise have applied. The employer was also using fixed terms as a way to assess suitability for permanent employment- which is expressly prohibited by s66(3)(b).
As a result, Ms Crossby’s employment was not fixed in nature. She was a permanent employee who had been unjustifiably dismissed.
This case is a reminder that employment law in New Zealand is deeper than just the contract. Employment agreements are not always enforceable as written. Assuming they are can be a costly mistake for employers.
If you need advice on your specific situation please contact the Watermark team directly to make an appointment.
Kylie Hudson
Associate
09 532 8211