Fixed-term Contracts – When is legal advice required?
The use of fixed-term contracts is attractive to many employers looking to maximise flexibility within their workforce and address temporary work needs. In particular, employers are drawn to the immunity given to them bythe Unfair Dismissals Act 1977. In short, a fixed-term employee is prevented from taking a claim for unfair dismissal when the term expires.
Provided the contract is (i) in writing; (ii) signed by both parties; and (iii) expressly excludes the application of the Unfair Dismissals legislation on the expiry of the term (the exclusion clause), the employer has a statutory defence to any claim for unfair dismissal.
However, a recent Labour Court case examined an employer's ability to rely on the exclusion clause and whether, to be enforceable, employees should receive independent legal advice before signing up to fixed-term contracts.
Below are the key issues in the 2018 case of Malahide Community School v Conaty and our advice to employers on the steps they should take when using fixed-term contracts.
Ms Conaty had been employed by the school as an english and religion teacher on a permanent basis. In 2015, the school asked Ms Conaty to enter into a fixed-term contract which included wording disapplying the application of the Unfair Dismissals legislation when her contract expired (i.e. the exclusion clause). When this 2015 fixed-term contract was not renewed, Ms Conaty took a claim for unfair dismissal. However, the school tried to rely on the exclusion clause and claimed that Ms Conaty was prevented from claiming unfair dismissal in these circumstances.
Section 2(2)(b) of the Unfair Dismissal Acts 1977 to 2015 (the UD Acts) excludes the application of the UD Acts to a dismissal that consists only of the expiry of a fixed-term without its renewal.
To rely on the exclusion clause, the contract must:
1. be in writing
2. be signed by or on behalf of the employer
3. be signed by the employee; and
4. provide that the Act shall not apply to a dismissal consisting only of the expiry of the fixed-term.
Ms Conaty's claim
Ms Conaty argued that the exclusion clause in the 2015 fixed-term contract:
(i) did not apply to her as she was a permanent employee with over one years' service so she already enjoyed the full protection of the UD Acts;
(ii) was in reality a waiver, and as such was not enforceable in her case; and
(iii) sought, in its effect, to take away the rights she already enjoyed under the UD Acts.
Ms Conaty argued that the exclusion clause in her 2015 contract had the same effect as a waiver of employment rights within a compromise waiver agreement. Ms Conaty claimed she should have received independent legal advice on what the effect of entering into such a contract would be. Instead, she said that the 2015 contract was introduced in the "most unusual and legally unorthodox circumstances and without informed consent".
The school's defence
The school argued:
(i) Ms Conaty had abandoned her permanent status by signing the 2015 fixed-term contract;
(ii) the exclusion clause was valid and enforceable;
(iii) the Court should disregard Ms Conaty's employment status in determining whether the exclusion clause was validly drafted; and
(iv) where an employee is denied a statutory right because it is excluded by the provisions of the UD Acts, then there is no obligation on an employer to bring that to the attention of the employee.
The Labour Court noted that Ms Conaty was "giving up what would otherwise be very valuable employment protection rights" by leaving permanent employment status and entering into a fixed-term contract arrangement. The Court concluded that Ms Conaty was not aware of this effect on her employment status when she signed the 2015 fixed-term contract. The Labour Court held that the "impact of the document" and its implications should have been explained to her by an independent adviser before signing the document. Given that Ms Conaty's consent was not fully informed, the Court ruled the fixed-term contract was "ineffective".
The Labour Court stated that, as the exclusion clause did not apply in her case, Ms Conaty was unfairly dismissed the school was ordered to re-instate her.
It is important to note that the Labour Court considered the facts of this case to be "substantially and materially different" to a normal fixed-term contract arrangement and that its decision was based on the "peculiar" and "unique factual matrix of the case". A fixed-term contract does not normally contain any waiver of legal rights but instead contains the statutory exclusion permitted by the UD Acts.
When entering into a compromise waiver agreement with an employee, independent legal advice as to the content and effect of the agreement continues to be an essential pre-requisite. By signing the agreement, an employee is accepting the terms of the agreement in full and final settlement and discharge of any rights or claims he or she has or may have, such that informed consent is critical. However, this principle has not been stretched to require an employer to advise their employees or prospective employees to obtain independent legal advice prior to entering into a fixed-term contract.
Date published: 24 August 2018