Fixing your fixed term agreements

9 Oct 19

The law requires that employment may only be “fixed term” if the employer has genuine reasons based on reasonable grounds for specifying why the term is fixed. The recent Employment Court decision of Morgan v Tranzit Coachlines has shed light on what is a genuine reason for employment being fixed term.

What happened in Tranzit Coachlines?

In Morgan v Tranzit Coachlines, Mr Morgan was employed for over 18 years on a series of fixed-term employment agreements. Mr Morgan’s employment agreements asserted the reason for them being fixed-term was because of Tranzit’s school bus driving contract with the Ministry of Education. The bus driving funding agreement expired on the last day of the year – along with Mr Morgan’s employment – both just happened to be renewed consistently over an 18 year period.

Tranzit’s position was that the funding agreement (and the revenue it guaranteed the business) was uncertain. It said the risk of the loss of funding meant it could not be sure it could permanently employ Mr Morgan. The Employment Court did not agree that was a genuine reason based on reasonable grounds. Why?

  1. “Financial uncertainty” in and of itself cannot suffice as a genuine reason based on reasonable grounds.
  2. Mr Morgan’s fixed-term employment agreements were following a “lengthy history of contractual stability”, and “the pattern of rollovers tends to suggest that there has been little (specific) financial uncertainty.” The risk of the funding agreement not renewing was “speculative”.
  3. There was no evidence before the Court as to Tranzit’s financial circumstances, the value of the bus driving funding agreement to it, or the potential losses it would suffer if it lost that contract.
  4. The redundancy provisions in the agreement undermined Tranzit’s reasons as it dealt with the exact situation of the company losing the bus driving funding agreement.
  5. Mr Morgan’s work was not directed at only a specific project of an anticipated limited duration.
  6. The Employment Court also set out two basic principles on determining whether fixed-term agreements had been entered into for genuine reasons based on reasonable grounds:
    • It is relevant to consider whether the stated ‘genuine reasons’ were sincerely held and were for a proper purpose.
    • If another mechanism (e.g. a permanent role) was reasonably available to the employer there may be an argument that fixed-term is inappropriate.

What does this mean for you?

Employers need to properly turn their minds to the reasons why they are making an agreement fixed term rather than permanent. Some ‘red flags’ to look out for in light of Tranzit Coachlines:

  1. Do you have fixed-term agreements that have been renewed (or extended) multiple times?
  2. Is your reason for making an agreement for a fixed term because of financial uncertainty?
  3. Do you have fixed-term agreements with no supporting evidence for the reason why they are fixed?
  4. Can you point to a specific enddate that is properly linked to your genuine reason?
  5. Do any of your fixed-term employees complete work tasks unrelated to the reason why their employment is fixed-term?
  6. Is there anything speculative about the terminating event (what might cause it not to occur)?
  7. Has the reason for the fixed term changed since the employment agreement was entered into?


Want to know more?

If you have any questions about employment law issues, please contact our specialist Employment Team.

The above article was included in the most recent edition of our quarterly newsletter Employment News. For this and other articles, please click on the following link:  Employment News – Edition 5