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Beware Fixed Term Agreements over 12 months

Published 21 Oct 2020

As we enter into the summer harvest season of 2020, the increase of seasonal employment is providing different challenges from previous years. With many new issues arising in the employment relationship with the dawn of a pandemic, seasonal employers are facing some additional problems.

For seasonal employment, fixed-term employment agreements are usually the way to go. A valid fixed term agreement requires 2 basic principles; a valid reason for the fixed term and a clear indication of the length of the term. Both need to be confirmed in writing and agreed upon before the commencement of employment.

The reason for the fixed term, is the most commonly disputed issue when contesting a temporary agreement like these, and is guided by the duties such an employee will be performing and goes to the heart of the employment agreement. The time frame, more often than not determined by a specific date can also be linked to a specified event.

With seasonal employment in the context of harvest, determining an exact date is challenging and the end of the harvest season is most commonly used as the terminating event and this opens up the contract for interpretation. The onus is therefore placed on the seasonal employer to prove that the duties the fixed term employee was employed to do no longer exist.

Due to the limited time frame of seasonal work, seasonal employers outsource a vast amount of this work to migrant workers. Seasonal employers, often work closely with third parties to ensure that the paperwork for such employees is up to date. In 2020 such employers found themselves in an unfamiliar situation with their fixed term employees. The normal practices of seasonal employment were influenced by the Covid19 lockdowns and travel restrictions, this resulted in fixed term agreements not ending as intended.

Seasonal employers who acted in good faith and sourced additional work for their migrant employees, who could not return back to their countries due to travel restrictions, had to do so with caution. These undue extensions, although a result of the pandemic does not alleviate employers from abiding with current employment legislation.

When considering the basic legal principals of fixed term agreements, seasonal employers offering an extension had to do so by way of a written agreement. Either a variation to the current fixed term or a complete new fixed term contract agreed between the two parties. These written agreements link to the reason for the extension/rollover, the termination of the previous contract and clear expectation on the time frame.

Statutory leave payments/entitlement is one of the main reasons to ensure additional or updated agreements are in place. Fixed term employers that use the “pay as you go” leave payments can only do so while a fixed term remains under 12 months in duration. When the 12-month period is reached, and no written agreement is in place, the employer may have to pay for annual leave again: once as the 8% “pay as you go” arrangement, and then again when 4 weeks paid leave becomes an entitlement after 12 months’ continous employment.

The ability to offset those previous 8% payments may vanish if consecutive fixed-term agreements are not clearly evidenced. Further to that cost, an employer can be liable for a penalty awarded for breach of the Act. In the absence of re-negotiated fixed term agreements MBIE's stance on this is that the Employer pays twice regardless of the good faith used to keep employees employed through this difficult year.

This is currently present in seasonal employment, however, all employers engaging in fix term contracts need to continuously monitor the period of their fixed term agreements. All EAL toolbox clients can utilise the toolbox reminder/notifications to prevent any needless payments.