Employers who frequently deal with fixed term workers will be well accustomed to the obligations surrounding fixed-term contracts and the rights employees under fixed-term contracts are afforded under the Protection of Employees (Fixed-Term Work) Act 2003 (the Act) with respect to their treatment in comparison to a comparable permanent employee.

In particular, employers are prohibited from renewing employees’ fixed-term contracts on more than two occasions where the duration of the contracts exceeds four years. There is, however, an exception to this rule. Employers may renew a fixed term contract where there are sufficient objective grounds justifying why the employer cannot offer the employee a permanent position.

If the employer fails to provide the employee with sufficient objective grounds as to why they can only offer a fixed-term contract (as opposed to a permanent offer), the employee could be deemed to be entitled to a contract of indefinite duration under the Act.

A question that often arises in the Human Resources sphere, is whether “budget restraints”, “cut backs”, “funding” or “costs reasons” are sufficient grounds that a company can rely on when renewing an employees’ fixed-term contract?

General cost-based justifications have largely been considered in case law to be inadequate grounds for refusing an employee a permanent position and offering a fixed-term contract renewal instead. Whilst funding can in theory factor into the decision as to whether a specific project is going to go ahead and consequently whether there will be a permanent need for a related role, it generally cannot be the sole reason why an employee is not offered a permanent position. Where cost-based justifications are put forward as objective grounds justifying why the employer cannot offer the employee a permanent position, this will be closely scrutinised by the Workplace Relations Commission (WRC).

What issues are considered by the WRC in scenarios such as this?

In a 2022 Workplace Relations Commission decision, Researcher v Media Organisation, ADJ-00025430, a complainant researcher argued she was entitled to a contract of indefinite duration following a series of fixed-term contracts and independent contractor arrangements with her employer.

The respondent employer offered a variety of rationales as to why the complainant was not entitled to a permanent position. In particular, the respondent argued that there was no agreement, understanding or commitment that the complainant would return to work and this was clearly indicated in writing to the complainant citing that “the specific programme ran on an annual renewal basis depending on available funding and there could be no guarantee of another season.”  The respondent submitted this demonstrated that objective grounds were justified given the fixed-term nature of the role.

Although the adjudicator agreed with the complainant that she is and was at all relevant times an employee of the respondent and she was not an independent contractor, the adjudicator ultimately found the complainant was not entitled to a contract of indefinite duration.

Finding in favour of the respondent on this particular issue, the adjudicator was satisfied that, in these specific circumstances, each engagement terminated when the specific programme ended its season as evidenced by the breaks between the contracts and there was no commitment made by the employer to future engagement as a researcher due to funding on that programme. This was also expressly communicated to the employee.

In this fact scenario the adjudicator was satisfied that the funding justification and objective grounds were genuine and clearly evidenced by the indefinite nature of the programme’s continuance.

This case emphasised the level of scrutiny adjudicators will apply when examining whether the grounds for offering a fixed-term contract renewal to an employee are authentic. Adjudicators have demonstrated a willingness to closely examine the genuineness of cost-based justifications such as funding, when put forward by an employer, highlighting the importance of tailoring objective grounds for fixed-term contract renewal for each employee’s role on a case-by-case basis and clearly communicating these grounds in writing to affected employees.

How must employees be notified of objective grounds?

Case law has established that employers are obligated to examine each employee’s fixed-term contract renewal on a case-by-case basis and provide individualised justifications in writing to the employee as to why they cannot offer a permanent position for that specific role. Employers are legally required to inform relevant employees in writing of the basis for the fixed-term contract renewal, at the latest, by the date of renewal.

We explore below what the Workplace Relations Commission (WRC) and the courts have deemed as acceptable reasons for renewing fixed term contracts and decisions in this sphere.

Legislation

Section 8(2) of Protection of Employees (Fixed-Term Work) Act 2003 provides as follows -

Where an employer proposes to renew a fixed-term contract, the fixed-term employee shall be informed in writing by the employer of the objective grounds justifying the renewal of the fixed-term contract and the failure to offer a contract of indefinite duration, at the latest by the date of the renewal.

It is essential that employers can support their decision to offer a fixed-term contract renewal with valid justifications as to why they could not offer a permanent contract for the role where there clearly is a need for the service. The Act prescribes that the written statement detailing the objective grounds for the fixed-term renewal must not be “evasive or equivocal”.

What grounds can an employer use to justify renewing an employee's fixed-term contract?

Case law has established that it is essential that employers can produce concrete evidence that is specific to the employee’s circumstances as opposed to generalised assertions when justifying an employee’s fixed-term contract renewal. This requires that employers consider each fixed-term contract renewal on a case-by-case basis and examine whether the employee’s role is serving a permanent need of the business, i.e., whether the fixed-term employee meets the temporary or transient needs of the business, or whether they are fulfilling a fixed and permanent need, in which case, the court could deem that the employee is entitled to a permanent contract.

Examples of objective grounds that have successfully been relied upon by employers in justifying the renewal of fixed-term contracts include:

• where an employer is facing significant restructuring, including redundancies in order to maintain economic viability;
• the need for temporary expertise in a particular field;
• to provide workers for a short-term project, provided the project is clearly defined and will eventually come to an end; and
• to cover staff absences including secondment, maternity, parental, adoptive or sick leave, provided the work done by the fixed-term employee has a clear relationship to the work carried out by the staff member being covered.