Employment contracts play a crucial role in defining the rights and obligations of both employers and employees. A recent Employment Relations Authority (ERA) decision highlights the risks of unjustified fixed-term contracts, leading to an employee’s claim of unjustified dismissal.

At Core Legal Masterton & Wellington, we help both employers and employees navigate complex employment law issues, including the proper use of trial periods and fixed-term agreements.

Background of the Case

An employee was initially hired under an employment agreement with a 90-day trial period. The employer terminated her within the trial period and then offered her a fixed-term contract while she searched for another job. The fixed-term contract expired after two months.

The employee later raised two personal grievance claims for unjustified dismissal. The ERA considered both claims separately:

1. Unjustified dismissal under the 90-day trial period
2. Unjustified dismissal due to the fixed-term contract’s expiry

The 90-Day Trial Period Was Valid

The employee argued that the 90-day trial period was invalid because she had previously performed work-related tasks during her job interviews, including assisting customers.

However, the ERA ruled that the trial period was valid because:

• The work-related tasks were part of the interview process to assess her skills, not formal employment.
• She did not expect payment for the tasks performed during the interview.

As a result, her claim for unjustified dismissal based on the trial period clause was dismissed.

The Fixed-Term Contract Was Unjustified

The ERA then considered whether the fixed-term contract was legally justified. Under New Zealand employment law, fixed-term contracts must have a genuine reason and cannot be used to:

• Limit employee rights under the Employment Relations Act.
• Test an employee’s suitability for permanent employment.
• Avoid obligations under the Holidays Act.

Although the employer genuinely believed they were helping the employee while she found another job, the ERA ruled that there was no valid reason for the role to be fixed-term rather than ongoing. The employer had an ongoing need for the position, making the fixed-term agreement unjustified.

Because the employer wrongfully relied on the contract’s expiry to dismiss the employee, the ERA ruled in favour of the employee, awarding her:

• $15,000 in compensation for hurt and humiliation.
• $2,625 for lost wages.

Key Takeaways for Employers and Employees

1. Trial periods must be properly implemented – Employees who have worked for an employer before, even in a minor capacity, may not be subject to a valid trial period.
2. Fixed-term contracts must have a genuine reason – Employers cannot use fixed-term contracts simply as a way to dismiss employees without due process.
3. Dismissals must follow a fair process – Employers should seek legal advice before terminating employment to avoid costly legal claims.

Get Expert Employment Law Advice

Whether you’re an employer drafting an employment contract or an employee facing an unjustified dismissal, it’s crucial to understand your legal rights and obligations. At Core Legal Masterton & Wellington, we provide expert legal advice to help you navigate employment law issues effectively.

Contact us today for a fixed-price initial consultation to discuss your situation and protect your legal rights.