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legitimacy of fixed term contracts

July 22nd 2019

Last month, an interesting case was heard at the ERA regarding a school bus driver, Mr Morgan, in the Wairapapa.  His employer (Tranzit) argued he was on a fixed term because the service was reliant on Ministry of Education funding and if the contract was lost, the company’s revenue would decline, impacting their ability to engage Mr Morgan. 

However, Mr Morgan, felt that the 18-year period of contractual stability should be enough to prove there is no uncertainty in the funding model and therefore he should be a permanent employee.

s66 of The Act states there are two thresholds that have to be met for a fixed term contract:

(a) have genuine reasons based on reasonable grounds for specifying that the employment of the employee is to end in that way; and
(b) advise the employee of when or how his or her employment will end and the reasons for his or her employment ending in that way

In this case, it was section s66(a) that was up for debate.  

In it’s determination, the Authority noted the lengthy history of contractual stability, however it said that rollover alone is not the reason the arrangement falls foul of the law – there is no magic number or bright-line test that applies to contract rollovers. 

Instead, they said the agreement failed to meet the conditions of s66(a) because potential loss of earnings from losing a contract is not a genuine reason for a fixed term contract. This was particularly relevant because the agreement also carried a redundancy clause that did reference loss of contract.

The learning from this ruling is to strongly consider if the grounds for a fixed term contract are really genuine.

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