Analysis

A fixed-term employment contract.

How to curb the negative effects of the amended Labour Code?

Legal Alert (17/2015)

Many employers will be affected by the revolutionary changes in the provisions of the Labour Code with respect to the popular form of employment which is a fixed-term employment contract. The amendments coming into effect on 22 February 2016 will impact a lot of employers and employees, including those who signed their contracts before the new amendment comes into force.

The changes made by the amended Labour Code include imposition of a time limit for the employment contract for a definite term, the maximum number of successive employment contracts signed with the same employer for a definite term, and new rules on the notice of termination of such agreements. We wrote about the new rules in the Legal Alert “The Employment Contract for a Definite Term – Fundamental Changes”.

The aforesaid changes can seriously affect the personnel policies of many companies, especially those with business models based on long-term employment contracts.

The amendment also applies to employment contracts for a definite term concluded before the new law comes into force.

Most importantly the new law applies not only to employment contracts for a definite term concluded after February 22, 2016, but also to most of the employment contracts signed before that date even though they were concluded under different provisions of law.

The employment contact for a definite term – what is important?

The aforesaid as well as the high degree of complexity and the casuistic nature of interim provisions of law makes an evaluation of the effects of the new law very difficult for employers under some circumstances.

Below we have some examples of the traps awaiting employers which can arise from the new provisions.

Automatic extension of the period of notice to terminate an employment contract for a definite term concluded before 22 February 2016<0}

Under the new law it will be possible to extend the period of notice to terminate some employment contracts concluded for a definite term before 22 February 2016 which are still valid on that date.

This arises from the new extended periods of notice (i.e. two weeks, one month or three months, depending on the length of time served in a job for the same employer) to terminate employment contracts for a definite term that are valid on 22 February 2016, which under the law applicable today, can be terminated upon a two weeks’ notice (i.e. contracts concluded for a term longer than six months). However, calculation of the length of employment, which determines the length of the notice period, will begin on 22 February 2016, i.e. the date of entry of the amended law into force.

Automatic extension of the notice period will have serious implications. For example under the new law, termination of employment will be governed mainly by the Labour Code instead of the clause providing a two-week notification period.

Automatic extension of period of notification of employment contracts for a definite term concluded before 22 February 2016

Some employment contracts for a definite term concluded before 22 February 2016 which are still valid on that date will automatically convert to employment contracts for an indefinite term by operation of law if the time limits provided by the amendment for fixed-term employment contacts are exceeded.

Under the amended law, employment contracts concluded for a definite term that are valid on 22 February 2016 are governed by the amended Art. 251 of the Labour Code which imposes the maximum term of a contract (up to 33 months) and the maximum number successive contracts (up to three). As a rule, the aforementioned limits will come into effect on the effective date of the amendment, i.e.:

  • The maximum 33-month term of employment will include the length of employment under a contract for a definite term starting from the effective date of the amendment;
  • An employment contract which is valid on the effective date of the amendment, depending on the circumstances, shall be deemed as the first or the second contract in accordance with the amended Labour Code (with some exceptions allowed under the interim provisions).

Long-term employment contracts for a definite term which are valid on the effective date of the amendment will automatically convert to employment contracts for an indefinite term by operation of law, no matter what the intention of the parties was at the time of signing the contract.

Doubts about employment contracts for a definite term concluded after 22 February 2016

Some doubts may also arise as to determination of the notice period and the type of employment with respect to fixed-term employment contracts concluded after the effective date of the amendment, i.e. 22 February 2016.

As regards employment contracts concluded for a definite term after 22 February 2016, the interim law does not provide any explanation whether the length of service for the same employee before the effective date of the amended law (e.g. an employment contract for a definite term terminated before 22 February 2016) should be taken into account in determining the length of termination notice period and whether the relevant limits have been exceeded.

Consequently, we cannot rule out that after 22 February 2016, prior to signing an employment contract for a definite term, the whole history of an employee’s service for a given employer will have to be taken into account.

An employment contract for a definite term – how to curb the negative effects of the amended Labour Code?

Employers using fixed-term employment contracts as part of their personnel policy should prepare themselves for the changes under the amended law because there are mechanisms that will allow them to avoid some of the traps laid by the new provisions.

For example, in same justified cases (e.g. employment contract with a substitute employee) the amended law provides some exceptions to the rules governing the relevant limits applicable to fixed-term employment contracts such as the maximum contract term and the maximum number of successive agreements signed with the same employer. It seems as though the same exceptions apply also to agreements signed prior to the effective date of the amendment.

Considering the importance of the changes resulting from the amendment as well as the aforementioned degree of interim provisions of law, the effect of the new law on employers’ personnel policies, including the employment contracts is a complicated topic which needs to be thoroughly discussed.

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