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How certain are fixed term employment agreements?

TrawlerThe Prime Minister said that the Government's job this year was about “growth, growth, growth”. On top of all the many public service job losses, there have been some big factory closures around the country recently. At the start of this month Carter Holt Harvey’s confirmed that its plywood plant is closing in Tokoroa with 119 jobs going, and its Eves Valley Sawmill in Tasman will see another 142 jobs go. Tokoroa’s Kinleith Mill paper manufacturing and packaging site has also stopped producing paper in June with a loss of over 150 jobs. The Ravensdown fertiliser plant in Dunedin has closed with around 30 people losing their jobs. Last year the Alliance Group closed its Timaru plant with around 600 jobs being lost.

Sealord is also proposing to close its coated fish factory in Nelson, looking to cut 79 permanent jobs - 57 factory roles and 22 management or office-based roles. This is on top of the many fixed term employment employees that Sealord uses in its wetfish factory in Nelson.

But Sealord has had a win in the Employment Relations Authority over its use of fixed term employment agreements even though the ERA accepted that their use is partly because Sealord does not want to incur redundancy costs.

Sealord employs a base of permanent employees to process fish at its wetfish factory. It also employs additional employees depending on the amount of fish it processes at the wet fish factory. This varies between years depending on the amount of fish to be processed. To manage this fluctuation, Sealord uses additional employees on fixed term employment agreements for a particular fishing season or catch amount. So, employees may have been employed on a fixed term employment agreement for the hoki season and then employed on a fixed term agreement for the processing of another fish catch for an external business under contract.

Fifty-six employees employed on a series of fixed term employment agreements challenged this, arguing that their employment has been continuous and that they are permanent employees.

The Employment Relations Act permits the use of fixed term employment agreements provided that the employee and the employer agree that employment will end at the close of a specified date or period; or on the occurrence of a specified event; or at the conclusion of a specified project. However, the employer must have genuine reasons based on reasonable grounds. The Act says that the reasons are not genuine reasons if they are used to exclude or limit the rights of the employee under the Act; or to establish the suitability of the employee for permanent employment; or to exclude or limit the rights of an employee under the Holidays Act.

The Authority Member, Peter van Keulen, was satisfied on the evidence that Sealord has genuine reasons for using fixed term employment agreements. He found the variability of Sealord’s processing requirements from the high volume hoki season to the much lower volumes for particular supply or processing agreements made commercial sense to use fixed term employment agreements. He accepted the evidence of Mr Doug Paulin, the Chief Executive, that if Sealord could not control its employment costs to the processing demand, then Sealord would have to close its factory.

This decision is somewhat hard to reconcile with the fairly recent Employment Court decision of Morgan v Tranzit Coachlines Wairarapa where a school bus driver was employed on a series of fixed-term agreements. The employer argued that its funding for the school bus services came from the Ministry of Education, and it was reasonable to link Mr Morgan’s employment to the MoE contracts as there was no certainty that the employer would retain that funding. The Chief Judge held that the MoE contracts had been consistently renewed, and that such contingencies could be dealt with under the redundancy provisions of the employment agreement.

Both the Sealord and the Tranzit cases were somewhat dependent on external contracts being secured. Both the Sealord employees and the Tranzit employee were consistently employed, notwithstanding this uncertainty of securing external contracts to provide services.

Employment law is very fact dependent, and also depends on how those facts are interpreted. It will be interesting to see if the Sealord employees appeal the decision and take the case to the Employment Court. Read more....