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Fixed-term contracts are not always the way out

  • Ireland
  • General


Joanne Hyde's article from the Sunday Business Post on 21 April.

Many of us will know from experience that often, what looks like the easy way out, may not be the best option in the long run. The same wisdom is equally applicable to managing the employment relationship.

As employment law advisors, we frequently encounter common misconceptions amongst employers, which essentially involve attempts to ‘take the easy way out’. For example, many employers hold the mistaken view that it is always ‘simpler’ or more ‘risk-free’ to engage individuals as independent contractors/consultants (as distinct from employees) or on fixed-term contracts, rather than permanent contracts. These decisions sometimes stem from an incorrect perception that these kinds of arrangements always offer a more flexible approach to engaging staff.

In the right circumstances (and provided that these arrangements are used and relied upon correctly), engaging individuals pursuant to a fixed-term contract or consultancy agreement can indeed offer a more flexible and appropriate solution for the business in question, and perhaps for the individual. However, if used incorrectly, an employer may end up with precisely the unwanted legal hassle that they were trying to avoid.

Focusing in particular on fixed-term contracts, one of their crucial advantages is the potential to avoid the application of the Unfair Dismissals Acts (the ‘Acts’). Generally speaking, the Acts enable an employee to bring a claim against his/her employer if the person believes that their employment was terminated unfairly and they have at least 12 months’ service.

When it comes to a first fixed-term contract (provided that certain requirements are complied with), an employee will not be able to bring a claim for unfair dismissal against his employer if the fixed-term contract was terminated solely due to the expiry of the fixed term itself. For example, if Mary is engaged for the first time on an 18 month fixed-term contract, she will not have a good unfair dismissal case if her contract is subsequently terminated due only to the expiry of the fixed term. This is the case even though Mary has in excess of 12 months’ service.

In order to be able to rely on the fixed-term exception to the Acts, the fixed-term contract itself must satisfy the following criteria:

    1. It must be in writing;

    2. It must be signed by the employer and employee; and

    3. It must expressly state that the Acts shall not be applicable to a termination, which arises as a result of the expiry of the term.

If any of the above criteria are not met, the employer will not be able to rely on the exclusion.

A recent decision of the Labour Court serves as an important reminder that employers will not be permitted to blindly rely on the above criteria as a means to avoid the application of the Acts. Instead, the employer must be able to demonstrate that the exception genuinely applies to the circumstances in question.

In Limerick City and County Council v Moran, the employer ran into difficulty in respect of the third criterion i.e. that the reason for the dismissal arose as a result of the expiry of the fixed term. In that case, the fixed-term contract appeared to satisfy each of the three criteria on its face and the employee’s employment had indeed been terminated on the date of the expiry of the agreed fixed-term.

However, this decision emphasises that in order to rely on the third criterion above, an employer must be able to show that the expiry of the fixed term was the only reason the contract was terminated. In this case, Mr Moran’s view was that there were other factors (performance issues) leading to the decision to terminate his employment. He also provided evidence to confirm that he was the only one of six fixed-term workers to be let go after the expiry of the fixed term. The Council went on to concede that if Mr Moran had not been engaged in a performance review process, he would have been retained beyond the date of expiry of the fixed term. Significantly, this demonstrated that the real reason behind his termination was performance issues, and it was not simply due to the expiry of the fixed term. Therefore, as the Council could not rely on the third criterion above, it could not rely on the exception to the Acts. The Labour Court therefore proceeded to deal with Mr Moran’s dismissal under the Acts, ultimately holding that Mr Moran had been unfairly dismissed from his position. He was awarded the equivalent of six months’ remuneration (salary plus benefits).

This decision, along with many others, highlights  the clear intention of the Courts and the Workplace Relations Commission, which is to look behind the paper and instead, at the reality of the situation. While, in many cases, it may be perfectly acceptable to use and rely on fixed-term contracts, carelessly hiding behind them as a means to avoid the Unfair Dismissals Acts will not be tolerated.

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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