Careful with Fixed Term Agreements

Have you heard the saying ‘no good deed goes unpunished’? This Employment Relations Authority case is the epitome of this. In brief the employer gave an employee who they dismissed in their 90-day trial period, a further two month fixed term agreement because it was just before Christmas and they felt sorry for them.

In Rookes v Tillmans Fine Furniture Ltd [2024] NZERA 504, the employee was employed as a sales consultant on a permanent Agreement. The Agreement included a valid 90-day trial period, the employee signed the Agreement prior to commencing employment and was terminated prior to the end of the 90 days. The termination was justified in all respects and resulted from the director’s view that the employee’s product knowledge had not grown quickly enough.

An aside from the main theme of this case is that Ms Rookes claimed the trial period was not valid because the interview process should be deemed to be work. If this was the case, then the trial period would be invalidated as she had previously been an employee. Ms Rookes claimed the two ‘interviews’ she had were very long, with the second interview including serving customers and doing the dishes after having a drink and lunch. From the employer’s perspective the reason for the second interview was that Ms Rookes was 10 minutes late for the first interview and was dressed in a manner not suited for his business. He was not going to offer her a position and Ms Rooke convinced him to give her a second chance. Ultimately the Authority determined the interviews, although long, were not work and therefore the trial period termination was valid.

It was 12 days before Christmas when the employee was dismissed and the director felt he had a “moral duty” to give the employee a chance to find alternative employment. As a result, he offered the employee a two-month fixed term Employment Agreement. When that two-month period came to an end the employee challenged the termination of her employment, claiming it was unjustified because the fixed term was not valid.

Section 66 of the Employment Relations Act (the Act) states that there has to be ‘genuine reasons based on reasonable grounds’ for a fixed term agreement. The reason given in the fixed term agreement was “the employee will have a reasonable amount of time to search for a new job after the Christmas / New Year holiday season finishes.” Section 66 inclusively lists three reasons that are not genuine. These reasons include excluding or limiting the rights of an employee under the Act (such as a right to a fair and reasonable process and justification for dismissal under section 103A).

The Authority found there were two reasons the fixed term did not meet those requirements. Firstly, it would have been appropriate for the employer to follow a performance improvement process to address any shortcomings in the employee’s product knowledge. It was on this basis the Authority determined the fixed term reason was intended to limit the employee’s rights.

Secondly, the employer needed a sales consultant beyond that two-month time frame, thereby demonstrating the position was not a fixed term one. As the Authority found the fixed term agreement did not meet the requirements of section 66, the employer could not rely upon it. The employee’s dismissal was therefore unjustified.

The Authority ordered the employer to pay the employee $15,000 in compensation and $2,625 in lost wages.

The key learning in this case is to ensure that any fixed term agreement is for genuine reasons. If you need help with wording for a fixed term agreement, please call us.