The lessons from Shortland v Alexander Construction

Shortland v Alexander Construction Company Limited [2010] NZEMPC 41 was a case before the Employment Court in Wellington, where Mrs Shortland, the employee, claimed to have been unjustifiably dismissed. Alexander Construction, the employer, said that the dismissal came at the end of a fixed term employment relationship. As a backup they also said that in any case the dismissal was a genuine redundancy.

Mrs Shortland started working for Alexander Construction in March 2003. At that stage she did clerical and administrative work. In May 2007 she was offered a position as site administrator for a project known as Elephant Hill. She was employed in this new position with a fresh employment agreement which stated that her employment would end “on the completion of the Elephant Hill project”. On 1 May 2008 Alexander Construction advised Mrs Shortland that her employment would end the following day, and gave her one week’s payment in lieu of notice. On 7 May the office that Mrs Shortland had worked in at the construction site was disestablished, and other employees working on that project were relocated to the company’s head office.

The first thing the Court did was examine whether or not the employment agreement complied with the requirements of the Employment Relations Act. A fixed term employment agreement must have two particular features:

1. There must be a genuine reason based on reasonable grounds for the fixed term, and
2. The employee must be notified of the reason for the fixed term.

In this case the employment agreement stated that employment would end on the completion of the project. However, the Court found that this wasn’t the real reason. The reason was actually that the Elephant Hill project was the sole significant work done by the company. However, the employment agreement did not mention this, even though this is something that might be assumed by somebody reading the agreement. This is one of the arguments that Alexander Construction made in the hearing. However, the Court rejected this and said that the reason for the fixed term employment cannot be provided by implication. The Employment Relations Act requires the reasons to be in writing to ensure absolute clarity and certainty. Therefore the Employment Court regarded the employment agreement as ‘open ended’ rather than ‘fixed term’.

This was enormously significant for Alexander Construction, because in relying on the fixed term employment agreement they had not followed the ordinary procedure that a reasonable employer would usually go through when dismissing an employee for redundancy or for other reasons.

However, Alexander Construction did try to argue that if the fixed term did not apply, the dismissal was still a genuine redundancy. The problem with that was that there was nothing about the agreement to say that the employee’s work would only be performed at the site, and nothing about the work itself which meant that it could only be performed at the site. In addition, the requirements of the Employment Relations Act relating to good faith were not met, in particular the obligation on employers to consult with employees about decisions which affect them. For these two reasons the Court found that Mrs Shortland’s dismissal was not justifiable on grounds of redundancy.

Alexander Construction’s lawyer made submissions to the Court that Mrs Shortland’s redundancy was inevitable, and therefore she should not be compensated for loss of her job. The Court rejected this because of Alexander Construction’s total failure to comply with its good faith obligations, and the fact that a significant portion of Mrs Shortland’s work was still being done by other employees of the company.

This case illustrates the importance of giving a precise end date to a fixed term employment agreement. In this case the employer viewed the phrase “completion of the Elephant Hill project” as meaning “when the site team comes back to the office”. However, the Employment Court did not take the same view, because significant practical work remained to be completed (including finishing work on a restaurant, some site works, and some paperwork). Practical Completion had not been certified and a Code Compliance Certificate had not been issued. Prior to these things being done (they were all completed later the same year), the Judge took the view that the project as a whole had not been completed.

The lesson to be learned from this case is that when employees are put on a fixed term employment agreement, it is absolutely essential to comply with the requirements of the Employment Relations Act by clearly and carefully setting out the date that the employment will come to an end. If the employer in this case had done this, Mrs Shortland could have been legitimately dismissed due to expiry of the fixed term, and the employer would have escaped having to pay $7,447.00 gross as reimbursement of lost remuneration, and $8,000.00 in compensation.

Remember that a fixed term employment agreement requires a genuine reason for the fixed term, and communication of that reason to the employee. No part of the reason can be left unsaid, as the Court will not imply a reason. The termination date needs to be very precise. If possible a specific calendar date should be given (providing that this can be adequately justified), but if this is not the case, the circumstances leading to the termination of the agreement need to be very carefully explained at length. Any uncertain phrases such as “completion of the project” should be broken down into more precise terms.

For instance:

• “Employment shall terminate on the date that the Code Compliance Certificate for x project is issued”, or
• “Employment shall terminate when the office at x site is disestablished”.

Employers cannot assume that they have the right to the final say, where something about an employment agreement is uncertain. The Court will interpret an employment agreement according to what it actually says, not what the employer would like it to say. A badly worded fixed term employment agreement runs a serious risk of being found to be employment of an indefinite duration.