1. How to draft a Fixed-Term Contract?
For most employers the primary benefit of a fixed-term contract lies in the exclusion of the Unfair Dismissal Acts 1977-2011 (the "UD Acts") on the expiry of the fixed-term. The UD Acts do not apply to a dismissal by reason of the expiration of a fixed-term contract, provided that the contract is:
- in writing;
- signed by both the employee and the employer; and
- specifically provides that the UD Acts do not apply to the dismissal at the expiry of the fixed-term.
In the event that any of these conditions are not met, the waiver will not be deemed to be valid, and the UD Acts will apply to the termination of the employee's employment.
2. Specified Purpose Contract –v- Fixed Term Contract
When drafting a contract for a role with a limited lifespan an employer should be mindful of its purpose. For example, certain contracts are more suited to a specific purpose, i.e. covering a maternity leave, rather than a specified duration, i.e. 6 months. If for example, an employer enters into a "fixed-term contract" as opposed to a "specified purpose contract" in order to cover a maternity leave and the employee on maternity leave decides to either (a) return from maternity leave early, or (b) take a period of unpaid leave or additional maternity leave, then the employer could be left with (a) an overlap of employees or (b) the need to issue a further fixed term contract of employment to cover the additional period.
3. Equal Treatment
The Act is, in name and substance, protective and based on the principle of non-discrimination. The Act provides that a fixed-term employee shall not be treated in a less favourable manner than a comparable permanent employee, in relation to his/her conditions of employment, unless justified on an objective ground. In addition the Act expressly provides that a fixed-term employee must be informed of vacancies which arise within an organisation.
4. Successive Fixed-Term Contracts
The Act sets out provisions governing employees working under a series of successive fixed-term contracts. It provides that where an employee is employed on 2 or more successive fixed-term contracts and the duration of the contracts exceeds 4 years, then in the absence of an objective justification for renewing the fixed-term contract, which reasons must be notified to the employee in advance of each renewal, the term of the second contract would be ineffective and the employee would be deemed to have a contract of indefinite duration, i.e. be a permanent employee.
It should be remembered that there is nothing in the Act which prevents an employer entering into a fixed term contract for more than 4 years initially. It is only once an employer decides to renew the fixed-term contract that issues can arise.
5. Objective Justification
An employer is obliged to inform an employee in writing, in advance, of the reasons it is extending the contract on a fixed-term basis. In the absence of such written notification, it will be difficult for an employer to subsequently stand over the fixed-term status of the contract.
The recent case of Teagasc v. Mr Kevin McNamara (2012) provides a useful determination in terms of how the Labour Court addresses the issue of objective justification. The Claimant was employed to undertake research pursuant to two successive fixed-term contracts both of which were expressed to be for a specific project for which external funding was provided.
Both contracts stated that the duration of the employment was incapable of precise ascertainment.
The Labour Court, having regard to the purpose for which the Respondent was established and the nature of the fixed-term role, held that carrying out research is a continuing and core function of the Respondent which is part of its fixed needs and in the circumstances the use of a fixed-term contract to undertake research could not be regarded as justifiable.
The Labour Court stated that if it were to hold that the use of successive fixed term contracts could be used indefinitely in such employment, so as to protect the employer against the possibility of an insufficient supply of work at some point in the future, the effectiveness of the Act would be seriously undermined.
6. Public Sector Moratorium is not Objective Justification
The recent decisions of the Labour Court in Arts Council v. Harte (2013) 24 E.LR. 85 and Kirwan v. Teaching Council (2012) E.L.R 301 held that any objective reason for the extension of a fixed-term contract must be provided for at the commencement of the fixed-term contract and that budgetary restrictions and the public sector moratorium could not constitute objective justification.
7. What is a Contract of Indefinite Duration?
Whilst contracts of indefinite duration are not given a statutory definition, commentators agree that such contracts are "no more than contracts terminable upon the giving of reasonable notice". Hogan J. in Holland v. Athlone IT 2012 E.L.R. 1 held where a contract is found to be void under Section 9(2) of the Act "this does not give the employee rights in excess of an ordinary employee. A finding of this nature does not place such an employee in a superior position to that of an ordinary employee ...".
8. The UD Acts
One provision, which is often overlooked with regard to fixed term contracts, is that the UD Acts provide that where an employee is reemployed under a subsequent fixed-term contract within 3 months of the expiry of the previous fixed-term contract, and in the opinion of the Rights Commissioner or the Employment Appeals Tribunal the employer offered the subsequent fixed-term contract to avoid liability under the UD Acts, then the period of service under the individual contracts of employment would be deemed to be one continuous period and the exclusion of the UD Acts would not apply.
9. Early Termination
In order to ensure that the employer has as much flexibility as possible in relation to fixed-term employees, it is advisable to insert a provision into the fixed-term contract of employment to the effect that "Notwithstanding the fixed term nature of the contract, the employer reserves the right to terminate the contract on 4 weeks' notice. In such circumstances, for the avoidance of doubt, the employee shall not be entitled to payment in respect of the balance of the contract".
It should be noted, however, that where the employer terminates the contract before the expiry of the specified term, the exclusion of the UD Acts will not apply to that dismissal – therefore it is important to ensure that the employer has a fair reason and follows a fair process prior to dismissing the employee.
A fixed-term employee cannot be selected for redundancy solely on the ground of his/her fixed-term status and any selection process to the contrary is likely to lead to a claim under the UD Acts. However where a fixed-term employee is fairly selected for redundancy during the term of the contract of employment, and he/she has 2 years' continuous service, he/she will be entitled to a statutory redundancy payment.
In addition, where an employee who was engaged under a fixed-term contract is dismissed by reason of the expiry of that term without it being renewed by reason of redundancy, where that employee has more than 2 years' service, then he/ she would be entitled to a statutory redundancy payment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.