Fixed terms contracts – the legal position

This guide provides some legal guidance in relation to the provision of fixed-term contracts and the obligations of employers in relation to such contracts.

Below we have set out the legal position in relation to fixed term contracts and the exception that can be applied in the renewal of such contracts beyond four years.

A fixed term contract is one of several different types of employment contracts available to you as an employer.

The most common type of employment contract is one of indefinite duration.

In other words, the contract continues until the employer, or the employee end it.

However, there are many employees who work under fixed-term contracts.

This type of contract ends on a specified date, or when a specific task is completed, or when a specific event occurs.

For example, you may wish to hire an employee for a specified period of time to cover maternity leave.

Such a contract would come to an end once maternity leave cover is no longer required, and your employee has returned to work i.e. when a specific event occurs.

However, a fixed-term contract can also involve a specified-purpose and so may not end on a specific date.

The Employment Equality Acts apply to all employees, regardless of their length of service.

So fixed term employees are protected from indirect discrimination by virtue of their fixed term status.

Protection of fixed term employees

The Protection of Employees (Fixed-Term Work) Act, 2003 offers significant protection to fixed term workers and the purpose of this legislation is

1. to ensure that fixed term workers are afforded no less favourable treatment than their comparable permanent counterparts and
2. to prevent employers from abusing employees by employing them on a series of successive short, fixed term contracts, rather than offering them permanent one.

Prior to this legislation fixed term employees were protected by the Unfair Dismissals Acts and the Employment Equality Acts.

A fixed term employee is defined in the Protection of Employees (Fixed-Term Work) Act, 2003 as:

“fixed-term employee” means a person having a contract of employment entered into directly with an employer where the end of the contract of employment concerned is determined by an objective condition such as arriving at a specific date, completing a specific task or the occurrence of a specific event but does not include—

• employees in initial vocational training relationships or apprenticeship schemes, or
• employees with a contract of employment which has been concluded within the framework of a specific public or publicly supported training, integration or vocational retraining programme;

However, fixed term workers are excluded from the protection of the Unfair Dismissals Acts by virtue of the fact that the contract has come to an end (either by expiry of the term or the arrival of the specific purpose event) provided three conditions are met:

1. The contract was in writing
2. The contract states that the Unfair Dismissals act will not apply to a dismissal which occurs only as a result of the end of the contract arriving
3. The contract was signed by both employee and employer.

It is worth noting that the Workplace Relations Commission (WRC) are quite strict on these conditions being met in order to avoid an unfair dismissal award being made against an employer.

The above exclusion does not apply to dismissal during the term of the fixed term contract, provided of course the employee has the necessary period of continuous service (1 year).

Successive fixed term contracts

Generally, there is a limit of four years on the length of successive fixed term contracts with the same employer or associated employer.

However, there is no limit on the duration of the first fixed term contract, provided it does not exceed the 4-year period.

This limitation of four years refers to “continuous employment” in fixed term contracts and this definition has been well tested as to what is considered continuous and otherwise.

Section 9 of the Protection of Employees (Fixed-Term Work) Act deals with the definition of continuous employment within the context of the fixed term work act.

The Act provides under section 9(3) that a contract of indefinite duration will arise by operation of law if a contract is awarded in breach of sections 9(1) or 9(2) of the act.

What this means is as follows: If an employee is employed on 2 or more successive fixed term contracts in continuous employment for a period of 4 years, then any attempt to give that employee a further fixed term contract is unlawful, and void and the employee is entitled to a contract of indefinite duration.

There is one major caveat here though: If the employer can justify the award of a further fixed term contract on objective grounds (as per subsection 4), then there is no breach of the Protection of Employees (Fixed Term Work) Act, 2003 and no entitlement to a contract of indefinite duration.

So, what are Objective Grounds?

As stated above the Act provides that a fixed-term employee may be treated in a less favourable manner to a comparable permanent employee where such treatment can be justified on objective grounds.

Section 7 of the Act sets out a definition of Objective Grounds as follows:

(1) A ground shall not be regarded as an objective ground for the purposes of any provision of this Part unless it is based on considerations other than the status of the employee concerned as a fixed-term employee and the less favourable treatment which it involves for that employee (which treatment may include the renewal of a fixed-term employee’s contract for a further fixed term) is for the purpose of achieving a legitimate objective of the employer and such treatment is appropriate and necessary for that purpose.

The test applied is essentially a three-tiered test which requires that the impugned measure must firstly meet a “real need” of the employer; secondly the measure must be “appropriate” to meet the objective which it pursues and finally the measure must be “necessary” to achieve that objective.

This test imports questions of proportionality and whether alternate means having a less discriminatory effect are available to achieve the objective in view.

Therefore, for objective grounds to be objectively justifiable by the employer:

1. They must correspond to a real need and legitimate objective of the employer
2. They must be appropriate to achieve this objective
3. They must be necessary to achieve this objective.

The Act also provides that where an employer proposes to renew a fixed-term contract, and is not granting a contract of indefinite duration, then the employer must state in writing to the employee the objective grounds for a further fixed term contract.

This written notice must be given to the employee at the date of renewal at the very latest.

In summary, fixed term contracts may be extended beyond the four-year period specified in the Act if the employer has justifiable objective grounds for doing so and those objective grounds are clearly set out to the employee in writing.

You can find our fixed term contract of employment template here