The flexibility that a Fixed Term Contract provides can be extremely beneficial from a commercial point of view. However, they can often be used in an inappropriate manner which may leave an employer exposed. Fixed-term workers are specifically protected by the Protection of Employment (Fixed Term Work) Act 2003 and it is critical that all employers understand the legal implications that accompany any such contract. Legal Minefield - An Eye-Opener Unfortunately there does appear to be a very common trend whereby fixed term contracts are used as a “test” for an employee’s suitable and capability. As such, employers regularly use fixed-term contracts as a form of probationary period. While this may seem appropriate for commercial and operational purposes within a business, it can leave a legal minefield.
- Firstly, a fixed-term contract can only be issued where there is a genuine reason (i.e. if the work is permanent then a permanent contract should be issued).
- Furthermore, an employer may only bring a fixed-term contract to a conclusion at the end of the fixed period in accordance with the above genuine reason (i.e. you shouldn’t use performance or conduct as a reason).
- As such, in line with the Fixed Term Work Act 2003, if you had no genuine reason for issuing a fixed-term contract in the first place then the employee is entitled to a contract of indefinite duration. If points 1 and 2 above are not satisfied then should the employee take a claim to the Right’s Commissioner they may be awarded compensation of up to 2 years’ salary.
What Happens when a Fixed-Term Nears its End Date? Where a fixed-term contract expires an employer is expected to issue the employee with a permanent contract and may only issue a further fixed-term where there are objective reasons for doing so. Generally, performance related reasons or competency issues are not seen as objective grounds for the non-renewal of a fixed-term contract. If an employer does have objective reasons for not offering a permanent contract or not renewing a fixed-term then they are obliged to notify the employee of any current vacancies. What may come as quite an eye-opener for many employers is that if a pregnant employee’s fixed-term is due to expire during their maternity leave then an employer may lawfully terminate their contract on that date. As such, the employee’s entitlement to maternity leave and benefits will expire when the contract expires. Employers must be aware however that they may only do this when there are objective grounds for doing so and it would be discriminatory to not renew the contract simply because they are pregnant. Is it Okay to Not Renew Fixed Term Contracts for Cost Saving Purposes? As a general point this is fine. However, remember that the Fixed Term Work Act 2003 operates to ensure that fixed-term employees are treated no less favourably than permanent employees. Thus, if the reason for non-renewal is basically a redundancy reason then the employee would be just as entitled to redundancy pay as any other permanent employee. Therefore, as a good general rule of thumb, leaving aside the fixed term element, if it looks like redundancy then chances are that it is redundancy and the employee would be entitled to redundancy payment. Penalties - A Costly Business In Glover -v- BLN Ltd [1973] IR 388, the employee was unfairly dismissed during the period of his fixed term contract and as there was 20 months still remaining on the fixed term contract, he was entitled to damages for the 20 months “loss of earnings”. In the case of Duncan Martin -v- University of Limerick [2004] the EAT awarded the employee €160,000 following a mix-up as to whether he was a permanent or fixed-term employee. Conclusion What has to be taken from the above is that it is critical that a fixed term contract is only set up when there is a genuine reason for doing so, such as the completion of specific project or a time associated task. A fixed term contract may be of benefit to use for “testing out” an employee but this would not be appropriate from a legal point of view and may end in a redundancy payments claim or a case of unfair dismissal. Employers should seek advice from Peninsula Business Services if they have any questions in respect of Fixed-Term Contracts. Please phone the 24 Hour Advice Service on 01 855 50 50 and one of our experienced consultants will be happy to assist.
