What happens at the end of a fixed term

contract?
Sarah ShortMar 26, 2018Short term contracts

If you’ve appointed a member of staff on a fixed term contract to cover a project, seasonal need or
maternity cover, you need to also consider what happens at the end of the fixed term. This article
outlines the various different outcomes at the end of a fixed term contract, and some key things to
remember
Ending a fixed term contract is a dismissal
Even though there is usually a set end date, the termination of employment on a fixed term contract is
still considered a dismissal for employment law purposes. This means if the employee has accrued two
years’ service, you need to be very careful that the dismissal is fair.
The end of a fixed term contract will normally be a fair dismissal if the reason the contract needed to
be fixed term was genuine, the work or funding has ceased and the employee was fully aware of this.
If however the work is carrying on, and the contract could have been renewed or extended, that will
imply that the fixed term was not the prime reason for dismissal, and the dismissal could possibly be
considered unfair.
Ending on predicted date
A fixed term contract normally has a specific end date, or sometimes is drafted to end on a certain
event, such as the return of an employee from maternity leave. Assuming everything goes according
to plan, and the contract is drafted accordingly, then the individual’s employment will automatically
terminate at that time.
Unlike with permanent contracts, there is not actually any need to specifically give notice of
termination, however obviously it is good practice to maintain good communication with your fixed
term employee and write confirming that their employment is ending, and tying up any loose ends
with regards to holiday accrual, return of property or similar end-of-employment administration.
Terminating early
Sometimes various factors may lead to a need to terminate a fixed term contract earlier than planned.
This could be a change in business circumstances such as funding withdrawal or project being
discontinued, or could be concerns with performance or conduct.
Because there is no need for employers to give a notice period to end a fixed term contract on its
expiry date, sometimes no alternative termination provision is included in the contract – employers
occasionally just remove their normal notice period clause and replace it with the end date of the fixed
term.
If you wish to terminate a fixed term appointment early and there is no provision to do so in the
contract you have used, then you are likely to find yourself liable for monies due under the remainder
of the contract until the expiry date, unless the reason you need to terminate is a gross misconduct
issue.
If you do have provision to terminate early in the contract, normally statutory minimum notice
requirements will apply, unless you include higher notice periods in the contract.
Renewal
Obviously sometimes a fixed term contract can be due to end but perhaps the work hasn’t finished, or
the need has been extended for whatever reason. If this happens you can extend or renew the fixed
term contract.
You can do this either by issuing a new fixed term contract (being careful to recognise the continuous
service the individual has already accrued) or by simply writing a letter extending the contract to a
new termination date.
Be aware that if you keep renewing a fixed term contract and the employee reaches four years’
continuous service, they will automatically become permanent members of staff.
Converting to permanent status
Sometimes the work a fixed term employee is doing needs to be covered for a set time period initially,
but then for whatever reason it becomes clear the need is now ongoing. If this happens you can
convert the appointment to permanent status. You can either do this with a new contract (recognising
continuity of service) or with a letter amending the terms of the fixed term contract.
Alternative vacancies
If a fixed term contract is coming to an end you should ensure your staff member has access to
vacancies in your business so that they have the opportunity to apply for permanent employment (or
another fixed term role) if available.
Redundancy
You need to be aware that even if your employee’s contract has a set date for termination, if the
reason the contract isn’t being renewed is that the need for the work has finished, or the funding has
stopped, then the reason for dismissal is likely to be redundancy, which means redundancy pay (and
consultation requirements) will apply if your employee has two years’ service.
Fixing fixed-term contracts

May 10, 2018 GERARDO MAXIMO FRANCISCO

To fix the problem of “endo” (end-of-contract), House Bill No. 6908 (An Act Strengthening the Security of Tenure of
Workers, Amending for the Purpose Presidential Decree No. 442, as amended, otherwise known as the “Labor
Code”) proposes, as one major solution (another being the expansion of what constitutes prohibited “labor-only”
contracting), the prohibition of employment with a fixed-term or definite period, except in the following cases: (i)
OFWs (overseas Filipino workers), (ii) workers on probation, (iii) relievers who are temporary replacements of absent
regular employees whose engagements shall not exceed six months, (iv) project employees, and (v) seasonal
workers. The bill further states that “[c]lauses in employment contracts providing for a fixed term or definite period
of employment are void.”

Endo is the practice of some ill-advised employers of ending the contracts of their employees so that they will not
attain the status of a regular (or permanent) employee and obtain the benefits pertaining to such status. The
example often illustrated is the case where an employee is employed for a fixed-term of only five months and, after
the expiration of the period, successive new five-month contracts are given to the same employee and ended again
after each period. If the employer cannot provide valid business reasons for employing the employee in this manner,
it may be effectively argued that the employer is unlawfully preventing the employee from becoming regular (under
the Labor Code, an employee is considered regular if he or she is allowed to work beyond a probationary period of
six months).

This proposed “fix” to the endo problem of prohibiting or voiding fixed-term contracts, however, will greatly
constrict businesses that legitimately need to augment, for a temporary or defined period, their workforce. This will
affect the productivity of businesses and growth of the economy. It can also be surmised that the Philippine
unemployment rate will significantly increase as a result of this proposal. Employers will be reluctant to hire
permanent employees to fulfill their short-term or “defined-term” needs. There will be considerably less
opportunities for employment.

There is no need to invalidate fixed-term contracts to end endo because protections are already in place for
employees with fixed-term contracts.
In Brent School v. Zamora (“Brent case;” 181 SCRA 702 [1990]), the Supreme Court upheld the legality of “fixed
period employment” under the Labor Code as long as there is no “circumvention of the employee’s right to be
secure in his [or her] tenure” and “[the fixed period] employment was agreed upon knowingly and voluntarily by the
parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any
other circumstances vitiating his [or her] consent, or where it satisfactorily appears that the employer and employee
dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former
over the latter.”

According to the Brent case, “where from the circumstances it is apparent that periods have been imposed to
preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to
public policy, morals, etc.”

Therefore, in a case where there is a repeated execution and ending of short-term contracts concerning the same
employee (or perhaps even different employees), the fixed-term contracts may be struck down as contrary to public
policy and the employee shall be considered as a regular employee of the employer.

There is no need to fix the endo problem by prohibiting fixed-term contracts (which may be good for the economy
and help in the employment of labor). The Supreme Court has already given employees the power to void fixed-term
contracts intended to circumvent their right to security of tenure.

As the Supreme Court aptly stated in the Brent case: “Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers’ using it as a means to
prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more
relevantly, curing a headache by lopping off the head.”