A contract that is stated to last for a period of time is considered to be a “fixed-term contract”.
There are many kinds of contracts, which are often mistaken to be a fixed-term contract, but these have to be distinguished. In order to be a fixed-term contract, there has to be a stated date as to when the contract expires.
The contract automatically comes to an end when the specified period expires. Employment contracts that are not meant to be fixed have no predetermined expiry period.
It is important to note that a genuine fixed term contract does not lose its character if it contains a clause allowing termination before the expiry of the fixed term.
The use of fixed-term contract must be genuinely related to operational reasons. The commercial reasons for employing a substantial number of workers on a fixed-term contract stems from the need for a more productive and efficient work place. This is for the employer to determine and the court cannot substitute its view over the employer’s business arrangements.
Genuine fixed-term contract such as seasonal work, replacement of an existing employee who is absent from work or on parental or long term leave may pose lesser problems that cases dealing with financial or budgeting reasons.
In a number of cases, the courts have expressed their suspicion that a number of employers used fixed-term contracts to avoid compensating unfair dismissals and redundancy payment if the workers hired on a fixed-term contract were laid off at the end of the contract period.
The practice of fixed-term contract should be allowed only in genuine cases (for example, during recession of when the service of an employee is needed temporarily).
Placing an employee on a fixed-term contract for any other reasons should be discouraged as the employer may abuse it by depriving the employee of his or her rights.
However, in the event of a fixed-term contract breach, the damages recoverable by the wrongfully-dismissed employee is equivalent to the wages or the salary he or she would have earned had the contract continued to the end of its term.
Therefore, such a contracts should only be used if it is genuinely related to the operational requirements of the establishment.
Genuine fixed-term contracts are suitable for temporary jobs. In the case of an ongoing business, fixed term contracts are not suitable, as it will contracts are not suitable as in will subject employees to uncertainty and insecurity.
Hence, employees have to be protected from “ordinary” employment dressed up in the form of temporary fixed-term contract.