Practical Employer Guidance on Fixed-Term Contracts

Introduction

Many employers utilise fixed-term and specific purpose contracts of employment. The RDJ LLP Employment Team regularly advises our clients on the employment law and HR considerations associated with such contracts. Recently, we have identified an increase in queries on the use of such contracts and we thought it would be useful for us to prepare a Q&A for employers, using the questions we are asked most frequently by our clients, to help employers to navigate this tricky area of employment law.

The Law

The Protection of Employees (Fixed-Term Work) Act 2003 (“the Act”) governs fixed-term and specified purpose contracts of employment (together referred to as “fixed-term contracts”). Section 6 of the Act sets out that fixed-term employees shall not be treated in a less favourable manner in respect of their conditions of employment than comparable permanent employees unless the reasons can be objectively justified.

The Act also places restrictions on the use of successive fixed-term contracts in Section 9 of the Act. In that regard, where an employee is employed under a series of successive fixed-term contracts, once that employee reaches three years of continuous employment, the employer cannot renew their fixed-term contract for longer than one year, unless there are objective reasons to do so.

If there are two or more continuous fixed-term contracts which exceeds 4 years, then the contract shall be deemed to be a contract of indefinite duration (“CID”). However, if there are objective grounds for justifying a renewal of a fixed-term contract, then the 4-year rule shall not apply.

Fixed-term contracts arise where the contract ends either:

• On a specific date.
• When a specific task is completed.
• When a specific event occurs.

The Act does not apply to agency workers who are temporarily placed in an organisation by an agency, but do not have an employment contract with the agency; apprentices; a member of the Defence Forces; a trainee Garda or a trainee nurse.

However, it is important to note that the Act applies to agency workers employed directly by an employment agency. Many of our clients are essentially employment agencies pursuant to the legal definition of “employment agency” as provided for under the Protection of Employees (Temporary Agency Work) Act 2012, which defines an “employment agency” as:

"a person (including a temporary work agency) engaged in an economic activity who employs an individual under a contract of employment by virtue of which the individual may be assigned to work for, and under the direction and supervision of, a person other than the first-mentioned person."

It is important to note from this definition that there is no requirement for an organisation to hold an employment agency licence or indeed to classify themselves as an employment agency to be legally considered to be an employment agency. We will discuss the relevance of this in our Q&A below.

Q&A:

1. Can fixed-term employees be treated differently to permanent employees?

As outlined above, the Act provides that any difference of treatment of fixed-term employees must be objectively justified. Section 7 of the Act sets out the meaning of objective grounds. Essentially, any difference in treatment must be based on considerations other than the status of the employee as a fixed-term employee and the reason behind the less favourable treatment must be for the purpose of achieving a legitimate objective of the employer and such treatment must be necessary for that purpose.

The Act also sets out that where, as regards any term of his or her contract, a fixed-term employee is treated by his or her employer in a less favourable manner than a comparable permanent employee, the treatment in question shall (for the purposes of section 6(2) of the Act) be regarded as justified on objective grounds, if the terms of the fixed-term employee’s contract of employment, taken as a whole, are at least as favourable as the terms of the comparable permanent employee’s contract of employment.

The right not to be treated in a less favourable manner than a comparable permanent employee shall not apply, in relation to any pension scheme or arrangement, to a fixed-term employee who normally works less than 20 per cent of the normal hours of the comparable permanent employee. However, this provision does not prevent an employer and a fixed-term employee from entering into an agreement whereby that employee may receive the same pension benefits as a comparable permanent employee.

2. What is a comparable permanent employee?

The qualifications for a comparator are set out in Section 5 of the Act. The comparator must be a permanent co-worker for the same employer and must do the same or similar work to the fixed-term employee under similar conditions. A good rule of thumb is that the comparator and the fixed-term employee are interchangeable.

3. Can I keep renewing fixed-term contracts indefinitely?

No, where an employee is employed on two or more successive fixed-term contracts, once that employee has completed three years continuous service, the contract can be renewed for a maximum period of one year. Therefore, successive fixed-term contracts cannot be extended beyond 4 years unless there are objective grounds to justify the reasons to not offer a contract of indefinite duration.

It is important to note however that this four-year threshold applies only to successive fixed-term contracts. Where an employer is issuing a fixed-term contract for the first time, there is no limit on the length of that contract. In that regard, it is not unusual to have fixed-term contracts that run for an initial period of 5 years, where the circumstances are appropriate for such a contract.

4. How do I renew a fixed-term contract?

Renewal can be done by way of letter or a new contract document, depending on the circumstances. It is important to note that, when renewing a fixed-term contract, employers are obliged to set out the objective reason for offering a further fixed-term contract as opposed to a contract of indefinite duration.

5. Can I include a probationary period in a fixed-term contract?

Yes, employers can, and should, include a probationary period in a fixed-term contract. However, in accordance with the European Union (Transparent and Predictable Working Conditions) Regulations 2022, which became law on 16 December 2022, probationary periods included in fixed-term contracts must be proportionate to the expected length of the contract and nature of the work. Furthermore, where a fixed-term contract is renewed for the same role, the contract shall not be subject to a new probationary period.

The fact that the fixed-term contract includes a probationary period must be specifically brought to the employee’s attention before they enter into the contract – this can be achieved most practically by referring to the probationary period in a cover letter or email accompanying the contract.

6. Can I include a notice period in a fixed-term contract?

Yes, employers can, and should include a notice provision in the fixed-term contract, allowing the employer to terminate with notice before the expiration of the fixed-term.

As with probationary periods above, the fact that the contract contains a notice provision must be specifically brought to the employee’s attention before they enter into the contract.

7. Are there any other clauses that are specific to fixed-term contracts?

Yes, all fixed-term contracts should include a provision which excludes the provisions of the Unfair Dismissals Acts from the termination of the contract arising solely from the expiration of the fixed-term. To ensure that this clause is enforceable, it must be in writing and signed by both parties. This exclusion will only apply where the contract naturally expires – it will not apply where the fixed-term contract is terminated earlier than the expiration of any fixed-term on notice, as provided for in Question 5 above.

8. Are fixed-term employees eligible for redundancy payments?

Where a fixed-term employee has at least 104 weeks service with their employer, and the circumstances of the non-renewal of their contract meets the definition of redundancy as provided for in the Redundancy Payments legislation, then the employee is entitled to a statutory redundancy payment, and possibly to an enhanced ex gratia payment if such payments are the norm for comparable permanent employees.

9. What happens if a fixed-term contract is due to expire during maternity leave?

A fixed-term contract continues as normal during maternity leave but can expire during maternity leave if the end date falls during the leave. Therefore, you might need to replace the fixed-term employee during their maternity leave, but you cannot revoke an offer of a fixed-term contract or terminate the fixed-term contract because of their maternity leave as to do would be discriminatory under the Employment Equality legislation.

10. Do fixed-term employees need to be notified of vacancies and training opportunities?

Yes, this is set out in Section 10 of the Act. The fixed-term employee must be notified of training and vacancies to allow them the same opportunity to secure a permanent position as other employees. This does not of course extend as far as giving the fixed-term worker a permanent vacancy, the obligation on the employer is to ensure they are notified of permanent vacancies in the organisation.

11. Can a fixed-term worker take a claim for unfair dismissal?

As outlined above, employers can exclude the provisions of the Unfair Dismissals Acts from a fixed-term contract, provided the following conditions are met:

• The contract must be in writing and must set out the specific duration of the fixed-term contract or, in the case of a specified-purposed contracts the object of the contract;
• The contract must be signed by both employee and the employer; and
• The contract must contain a specific clause stating that the expiry of the contract will not make it liable to a claim under the Unfair Dismissals Acts.

However, employers should also note that the Workplace Relations Commission (“WRC”) can ignore the exclusion if there is any suggestion in the case that there was some other reason, other than the expiration of the fixed-term, such as performance and/or disciplinary issues.

Also, where the fixed-term worker is an agency worker, the Unfair Dismissal lies against the end user organisation and not the “agency” which employs the individual.

12. What are the implications if a breach of the 2003 Act is found?

A complaint for a breach of the legislation may be brought to the WRC provided it is made within six months of the date of the alleged breach (this time limit can be extended to 12 months for reasonable cause).

The WRC Adjudicator can do one or more of the following:

• Declare the claim to be well-founded or not.
• Require the employer to comply with the relevant provision of the Act.
• Require the employer to re-instate or re-engage the employee (including on a contract of indefinite duration).
• Require the employer pay an award of compensation not exceeding 2 years renumeration.

Conclusion

The use of fixed-term contracts is a common practice among employers, and it is important for employers to be aware of the legal complexities around such contracts to ensure that no legal liability is inadvertently being created where it is not intended to do so.

The RDJ LLP Employment Team is very experienced in this area and is happy to assist employers to draft the most appropriate contracts, for the most appropriate time periods, and to ensure that renewal paperwork and termination paperwork is drafted to mitigate legal risk.