Fixed Term Employment – A Quick Guide for N.Z Employers
Fixed term employment agreements can be a legitimate and useful tool for New Zealand employers when there is a genuine, or temporary business need. Common examples include project-based work, seasonal demand, or providing cover for parental leave.
However, fixed term agreements are strictly regulated. Section 66 of the Employment Relations Act 2000 (‘the Act’) sets clear requirements. If these are not met, a fixed term employment agreement may be treated as permanent employment, exposing employers to arrears claims for failing to manage holiday pay obligations correctly, personal grievance claims, financial remedies, and penalties.
What is Fixed Term Employment?
A fixed term employment agreement is one that ends on a specified date, at the end of a defined period, or on the occurrence of a specified event.
Fixed term employment can only be used where there is a genuine reason, based on reasonable grounds, for limiting the duration of employment. The reason must relate to the job itself, not the employer’s preference for flexibility or convenience.
Employers must ensure their reason for using a fixed term employment agreement is compliant with the law and employment agreement itself contains clear drafting on matters relating to the fixed term nature of employment.
Section 66 – The Statutory Framework and Legal Requirements
Under section 66 of the Act:
The employer and employee may agree the employment will end on a specified date, period, or event.
The employer must have a genuine reason, based on reasonable grounds, for the fixed term.
The employer must advise the employee of the reason for the fixed term and how or when the employment will end.
A fixed term must not be used to exclude or limit employee rights under the Act.
In practice, employers must be able to clearly explain and justify both why the role is temporary and how it will end.
A fixed term employment agreement cannot be used to test the suitability of an employee for permanent employment – this is strictly legally prohibited and unlawful.
Employer Pro has a range of up-to-date, employer-focused and legally compliant employment agreement templates, including a ‘Fixed-term Employment Agreement’ template that employers can access, which include practical commentary and guidelines.
Common Reasons to Use a Fixed Term Employment Agreement
Fixed term agreements are commonly appropriate where:
The role exists for a defined project or piece of work.
The employee is engaged to cover parental leave, long-term sick leave, or a secondment.
There is genuine seasonal or peak demand.
A fixed term should not be used simply because the employer wants flexibility, is unsure about ongoing work, or wishes to avoid termination or redundancy obligations.
A fixed term should not be used simply because the employer wants flexibility, is unsure about ongoing work, or wishes to avoid termination or redundancy obligations. Using a fixed term employment agreement to circumvent the law is a recipe for disaster for employers.
Why Getting it Wrong Matters?
If a fixed term agreement does not comply with section 66, the Authority or Court may find the employee was permanent. When the employment then “ends”, this can amount to an unjustified dismissal.
Employers may be liable for:
Lost wages.
Compensation for injury to feelings, or loss of dignity.
Holiday pay and leave arrears.
Penalties for breaches of employment standards.
Key Risk Areas for Employers
No Genuine Reason: Using fixed term employment agreements because of business preference, or uncertainty will not meet the legal test.
Unclear End Point: Fixed term employment agreements must clearly state when and how employment will end. Vague wording undermines compliance.
Rolling Fixed Terms: Repeated renewals for the same role strongly suggest the work is ongoing and increase the risk the employment will be treated as permanent.
Mismatch Between Contract and Reality: The Authority and Court focus on how the relationship operates in practice, not just what the employment agreement says.
Case Law Snapshot – What Cases Tell Employers?
Tillmans Fine Furniture Limited v Rookes [2024] NZERA 504; [2025] NZEmpC 152
An employee was initially engaged in a permanent sales consultant role subject to a valid 90-day trial period. After the employer lawfully terminated her under the trial for performance reasons, the employer offered her a two-month fixed term agreement to provide income over the Christmas season and allow time to seek new work.
When the fixed term expired, the employee raised a personal grievance, arguing the fixed term was invalid and that its expiry was effectively a dismissal. Both the Employment Relations Authority and the Employment Court agreed.
Key Findings:
The employer did not have “genuine reasons based on reasonable grounds” for limiting the role to the fixed term required by section 66 of the Employment Relations Act 2000.
The real reason for the fixed term was to limit the employer’s exposure to a personal grievance and avoid ongoing obligations, which is expressly excluded as a genuine reason under section 66(3).
The employer also had an ongoing operational need for a sales consultant beyond the fixed term, undermining the temporary nature of the role.
Both the Authority and Court determined the fixed term was invalid and its expiry constituted an unjustified dismissal. The employee was awarded over $17,500 in financial remedies (excluding the employer’s own legal costs).
Employer Takeaway: A fixed term must be supported by a genuinely time-limited operational reason that aligns with the statutory criteria. Using a fixed term primarily to limit liability or avoid obligations (even if well-intentioned) does not satisfy section 66 and can expose an employer to unjustified dismissal findings and financial liability.
Wood v Television New Zealand Limited [2005] NZERA AA 439/05
A high-profile TV presenter was employed under a fixed-term agreement with TVNZ that was due to expire. During negotiations for continued employment, TVNZ sought to move her to a new contract with a significantly lower salary (from $450,000 to $350,000 per year) and different employment terms. The employee contended that the fixed-term arrangement was invalid and that she should be on an indefinite contract with her existing salary preserved.
The Authority was required to determine whether the fixed-term clause in the employee’s employment agreement was valid and, if not, whether TVNZ could require her to accept new terms including a lower salary.
The Authority found:
Fixed-term clause was declared ineffective. The employee was entitled to treat the fixed-term provision of her contract as ineffective, meaning she was no longer limited to employment ending on a specified date.
As a result, the employee’s employment was determined to be indefinite and could only be terminated for cause, i.e. by a justified employment process, not the expiry of the fixed term.
TVNZ could not unilaterally impose the $100,000 reduced salary without the employee’s agreement.
The employee was entitled to her then full salary of $450,000.
The employee succeeded in her claim to treat the contract’s fixed-term clause as ineffective and maintain her salary. TVNZ was prevented from unilaterally imposing new terms or pay without her consent.
Employer Takeaway: If an employer cannot show genuine reasons based on reasonable grounds for a fixed-term arrangement or properly explain the end-date and reasons to the employee, the employee may treat the fixed-term as ineffective – effectively converting the role to an indefinite employment with full employment protections.
Practical Guidance for Employers
Before using a fixed term agreement, employers should consider:
Is there a genuine, objective reason the role must end?
Can that reason be clearly explained in the agreement?
Does the end date or event align with the reason?
Is the work truly temporary in practice?
Best practice includes documenting the reason in the agreement, avoiding automatic renewals, and regularly reviewing fixed term arrangements.
Common Employer Pitfalls
Using fixed term agreements as a default.
Relying on vague funding or workload uncertainty.
Repeatedly renewing fixed terms for the same role.
Allowing temporary roles to become permanent without updating employment agreements.
Compliance Warning
Fixed term employment agreements are tightly regulated under section 66 of the Act. Non-compliant fixed terms may be treated as permanent employment and ending them can result in unjustified dismissal findings and significant financial liability.
Employers should ensure fixed term agreements are genuinely justified, clearly documented, and regularly reviewed. Professional advice should be sought where there is any uncertainty.
This article is provided for general information only and does not replace professional advice. Employers should seek advice specific to their circumstances from Employer Pro if in doubt on their legal obligations associated with managing fixed term employment agreements. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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