Engaging employees on fixed-term contracts has many benefits, but you also need to think through the downsides or issues too.
Benefits of fixed-term contracts
The benefits include:
- the additional flexibility to add new expertise or knowledge to your existing workforce for a period of time without having to make them permanent,
- the flexibility to temporarily cover for another staff member who may be on leave or a long-term absence without having to make them permanent, and
- the flexibility to temporarily add additional staff in high demand areas for a period of time without having to make them permanent.
What is a fixed-term contract?
Fixed-term means that you hire the person:
- for a specific period or fixed-term, for example, 6 months or 1 year, or
- for a specific purpose, for example, the implementation of the new SAP system, to cover a maternity leave, to complete a change management programme.
Start date and end date or a specific purpose
What distinguishes fixed-term workers from other permanent employees is that their contract terminates automatically at the end of the specific period for which they were hired or when the specific purpose for which they were hired has been concluded.
However, you must have stated in the contract of employment a clear start date and end date to the fixed-term or a clear start and end to the specific purpose.
You should also clearly state in the contract that the contract will automatically terminate on the arrival of the end date for the fixed-term or on the end of the specific purpose.
Unfair dismissals act doesn’t apply
In addition, as the Unfair Dismissals Acts do not apply when the fixed-term or specific purpose contract naturally end, as outlined in the previous paragraph, your contract should also state this i.e. that the Unfair Dismissals Acts do not apply to the expiry of the contract at the end of the fixed-term or on conclusion of the specific purpose.
Objective grounds for not using permanent contracts
However, you can’t as an employer over-use the flexibility provided in fixed-term contracts and specific-purpose contracts.
At the end of the day, you must have a sound rationale for NOT making the fixed-term worker or the employee on the specific-purpose contract permanent. The Fixed-Term Work Act requires that you have objective grounds for not either a) renewing the employee’s contract for another fixed-term or specific purpose or b) making them permanent.
Thus, if you are not renewing a fixed-term or specific-purpose contract you must have clear objective grounds for not doing so. Examples of clear objective grounds could include, for example, the SAP has now been installed and is fully implemented therefore the specific purpose for which the employee was hired has naturally expired, or it could be, for example, that the customer contract on which the employee was working has come to an end and thereby the specific purpose contract automatically come to an end.
In the case of a fixed-term contract, which is say for 6 months or 1 year, while it will automatically end after the 6 months or the 1 year, you must also have clear rationale or objective grounds for not renewing this contract or for not making the employee permanent.
The objective grounds need to be put in writing to the employee before the expiry of the contract and at the time you are indicating you are either not renewing the contract or you are renewing it but not making the employee permanent. If you do not put the reasons or the renewal or non-renewal notice in writing, the contract is automatically deemed to have lapsed into a permanent contract.
Not a panacea
As you can see from the above, fixed-term and specific-purpose contracts are not a panacea for all-out flexibility. You must observe certain rules and work within the parameters of fixed-term legislation.
Non renewal not related to discipline or performance issues
One other thing to be aware of is that non-renewal of fixed-term or specific-purpose contracts because of issues to do with performance or discipline does not meet the ‘objective grounds’ requirements. In other words, if you have issues about an employees’ performance, absenteeism, attitude or behaviours, or they have been placed on a PIP (Performance Improvement Plan) or are on a disciplinary, none of that is sufficient grounds for not renewing a contract. In law, these matters must be dealt with through the normal processes related to performance management, performance improvement and disciplinary.
4 years maximum
Finally, one last thing is to recall that a fixed-term contract with an employee can be used for a maximum of 4 years, although, in some rare exceptions, it can be for longer. In the vast majority of cases therefore you can have as many fixed-term contracts as you wish once they don’t exceed 4 years (it used to be different but that law changed some years ago).