What every New Zealand Employer needs to know about Fixed Term Contracts
- Anne-Marie Dolan
- Apr 22
- 5 min read
When your business needs extra hands for a busy season, a maternity leave cover, or a short-term project, a fixed term employment contract can seem like the perfect solution, and often, it is. But there can be a catch. If you get the details or process wrong, what you intended as a temporary arrangement can quickly become a legal headache.
What Is a Fixed Term Employment Contract?
A fixed term employment agreement is one where the employment ends:
on a specified date, or
at the conclusion of a specified project, or
when a specified event occurs.
Under New Zealand law, fixed term arrangements are governed by the Employment Relations Act 2000, particularly section 66.
The law requires that employers must have:
A genuine reason based on reasonable grounds for the fixed term, and
The reason must not be simply to deny employees rights or protections.
This is critical. You cannot use fixed term contracts merely because it suits the business, or because you want an easier exit option.
If no genuine reason existed when the contract was signed, for example the reason was not recorded or the end date/event was unclear, then the employee may legally be considered permanent from day one. That means they may challenge their termination, raise a personal grievance, or claim unjustified dismissal.
When Should Fixed Term Contracts Be Used?
Fixed term employment is appropriate when there is a genuine temporary need, such as:
Parental Leave Cover
Replacing an employee while they are on parental leave is one of the most common lawful uses.
Seasonal Demand
Retail peaks, tourism surges, horticulture harvests, and holiday trading periods often justify temporary staffing.
Specific Projects
If a project has a defined completion date, fixed term employment may be suitable.
Funding-Limited Roles
Where external funding is temporary or grant-based, a fixed term may be appropriate.
Trial-Based Business Expansion
If launching a temporary service offering or pilot programme, a fixed term may reflect genuine uncertainty.
A fixed term contract should not be used for permanent ongoing roles, to avoid dismissal processes, to test someone instead of using lawful probationary or trial period clauses, or without a real end point.
What are the pros and cons of employing a worker on a fixed term contract?
Advantages | Disadvantages |
The flexibility makes it ideal for adapting workforce levels to business demand. Makes staffing costs predictable when you know the duration and cost commitment upfront. It reduces long-term risk where future workload is uncertain. Allows for hiring of targeted expertise for short-term needs. Makes workforce planning easier for project forecasting and operational scheduling. | There are legal risks if the contract is incorrectly drafted and if the reason is found to be invalid, the employee may be deemed permanent. Short term contracts may make workers feel less invested. You may find yourself repeatedly recruiting for the same role. Fixed term employees may feel excluded if not integrated properly. If expectations are unclear, disputes can arise over whether employment should continue. |
What must be Included in a Fixed Term Contract?
If you are going to use a fixed term agreement it must clearly state:
The Reason for the Fixed Term: For example you may say “This role exists to cover parental leave for Jane Smith.”
How Employment Will End: Specify whether it ends on a date, on project completion, or on return of another employee.
Why the End Method Is Appropriate: The agreement should explain why that end point is relevant.
Notice Provisions: Whether and what amount of notice is required before the fixed term expires.
Standard Employment Terms: Include wages, hours, leave entitlements, dispute resolution, etc. Without these clauses, the arrangement may fail legal scrutiny.
Fixed term employees are still employees and they are entitled to the same legal protections as permanent staff. Under New Zealand legislation, they must receive equal treatment under the Employment Relations Act 2000, Holidays Act 2003, Minimum Wage Act 1983, KiwiSaver Act 2006, and Health and Safety at Work Act 2015. Employers cannot treat fixed term employees as “second-tier” staff.
What Happens When the Fixed Term Ends?
If You Do NOT Wish to Continue Employment
If the agreement was lawful and properly drafted employment ends automatically at the agreed term. No dismissal process is required. The employer should confirm the ending in writing with the employee. It is good practice to remind employees ahead of the term expiring, for example ‘Your fixed term agreement concludes on 30 September as agreed.’
If You DO Wish to Continue Employment
You have two options. You can renew for another fixed term (if there is still a genuine lawful reason) or convert the employee to permanent employment. Repeatedly rolling over fixed term agreements without valid reasons may create legal risk.
Frequently Asked Questions
Can a fixed term employee resign early?
Yes, if the agreement allows resignation provisions or both parties agree.
Can I terminate early before the end date?
Only if the contract includes lawful early termination clauses.
Can fixed term employees raise personal grievances?
Absolutely. They have the same rights as permanent employees.
Can I renew a fixed term contract multiple times?
Yes, but only where each renewal has a genuine lawful basis.
Does a fixed term employee get annual leave?
Yes. They are entitled under the Holidays Act like any other employee.
Can I use a fixed term contract for a new permanent role?
No, unless there is a genuine temporary reason.
What happens if I forget to end the contract?
If the employee continues working past expiry without clarification, ambiguity may arise and permanent status risk increases.
Fixed term contracts can be valuable tools, but only when used correctly. They should solve genuine temporary staffing needs, not create shortcuts around employment obligations. If your business is using fixed term arrangements, ask yourself:
Is there a real temporary reason?
Is it properly documented?
Would this stand up if challenged?
Because in employment law, what seems simple can become expensive very quickly.
If you need help drafting or reviewing your fixed term contracts, get in touch for a free consultation today. Employer-Direct.co.nz | 0800 612 355
Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal advice. While we strive to keep the information accurate and up to date, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. For specific legal advice tailored to your situation, please contact a qualified legal professional.
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