At the time the Employment Relations Act 2000 ("ERA") was introduced, there was much debate about what would constitute "genuine reasons based on reasonable grounds" for a fixed term agreement entered into under section 66.
The Law Prior to the ERA - HaggThere was no reference whatsoever to fixed terms in the Employment Contracts Act 1991. The courts focussed on the plain words of the fixed term contract and said that employment ended at the expiry date, provided that the contract was not a "sham" and no legitimate expectation of continued employment had been given to the employee. (Principal of Auckland College of Education v Hagg [1997] ERNZ 116). All this has changed since the ERA came into force. The legislature has made express reference to fixed terms in the ERA and Hagg is no longer good law.
Genuine ReasonTo recap, section 66 provides that:
an employer needs to have genuine reasons based on reasonable grounds for specifying that employment is to be for a fixed term; and that an employer must advise an employee of when or how his or her employment will end and the reason for his or her employment ending in that way before entering into an employment agreement.Section 66 expressly provides that establishing the suitability of the employees for permanent employment is not a genuine reason.
Initially, in the absence of cases under the ERA, we had to refer to cases decided under the Labour Relations Act 1987 for guidance on what would constitute genuine reasons for fixed term employment agreements under section 66. However, there have now been a few cases before the Authority regarding whether reasons for fixed term agreements are genuine and based on reasonable grounds.
Leading Case under ERA – Miller v Red BullThe recent case is Miller v Red Bull New Zealand Ltd (unreported, 18/04/02, P Cheyne). The Authority held that:
section 66 is a code detailing when fixed term agreements are lawful; a balance needs to be struck between an employer’s genuine need for fixed term employment and an employee’s right not to be deprived of their rights through ordinary employment being dressed up in the form of temporary fixed term contracts; in striking a balance, it is necessary to assess whether an employer had genuine reasons based on reasonable grounds for stipulating a fixed term agreement. This assessment is to include, but not be limited to, an inquiry about the genuineness of the stated reasons. Because there must be reasonable grounds for fixed term agreements, the Authority must assess matters that were previously held to fall within the scope of managerial prerogative.In this particular case, Red Bull had argued that it had "operational reasons" for putting Ms Miller on two successive fixed term agreements. First, it argued that there was a business requirement for various specified reasons to ensure staff turnover amongst brand ambassadors. Secondly, Red Bull claimed that its budgeting process for the sampling programme (which Ms Miller conducted) determined the funds available, and in turn, the continued employment of brand ambassadors.
The Authority held that there was no substance to the budgeting reason because many organisations produce yearly budgets, and a twelve month budget cycle said to warrant a twelve month term, could not be a genuine reason on reasonable grounds for a six month fixed term (the duration of Ms Miller’s second fixed term). The Authority said that this was a logical difficulty. Further, the sampling programme was on-going and there was still a need for a brand manager based in Christchurch.
The Authority rejected the other reason given by Red Bull for the need to have a fixed term to ensure that brand ambassadors came across as innovative, creative and easygoing. The Authority said that these traits related to the performance of employees rather than the duration of their employment.
Other CasesOther recent cases decided under the ERA also illustrate the fact that the Authority will make its own assessment on whether a reason is based on "reasonable grounds".
In Bunter v The University of Auckland (unreported, 14/09/01, Y F Oldfield), the Authority accepted that the need for temporary cover during the secondment of an incumbent permanent employee was a genuine and justifiable reason for putting Mr Bunter on fixed term agreements. Mr Bunter was advised of the reason in direct discussion. The temporary position was not put in place in order to establish Mr Bunter’s suitability for permanent employment, as at the time the fixed term contracts were entered into it was not known whether a permanent appointment would be advertised. Therefore, the actions of the University of Auckland had not breached section 66 of the ERA.
In New Zealand Merchants’ Service Guild Industrial Union Inc. & Ors v Pacifica Shipping (1985) Ltd (unreported, 24/08/01, G J Wood), the Authority held that the employer’s reason for the fixed term agreement, (namely that the market for the company’s services was extremely volatile and it was unknown whether the situation was likely to change), was not a genuine reason based on reasonable grounds for having two employees on fixed terms. In reaching this decision, the Authority held that section 66 was clearly inserted by the legislature in order to overcome the perceived detriment to employees of the Court of Appeal’s judgement in Hagg.
In SummaryIn summary, we now have some guidance on the approach being taken by the Authority to fixed term agreements under the ERA. Although what will constitute acceptable genuine reasons on reasonable grounds for a fixed term will turn on the facts of each particular case, it is clear that following the Red Bull case, the Authority will be inquiring into an employer’s reasons for a fixed term and will be forming its own view on what is "reasonable". It is yet to be seen whether the Employment Court and Court of Appeal will approve of that approach. This is definitely one area of law to keep an eye on and we will keep you updated!
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