A fixed-term employment could be extended over and over again

A company was about to move its business to China and due to shortage of work, 11 employees were given notice in the spring of 2013. The employees were given notice with their individual terms of notice.

However, the outsourcing was delayed and suddenly the sales numbers increased, whereas all of the 11 employees were offered an extension of their respective fixed-term employment contracts. Later on, several of the employees were offered new extensions of their fixed-term employment contracts.

The parties agreed that the change of the effective date of termination constituted a new fixed-term employment relationship.
The question raised under this case was whether the company had abused its access to establish several successive fixed-term employments and thereby was obligated to offer the employees new individual terms of notice at the final termination.

Moreover, the employees argued that the fixed-term employments were unnecessary, because there in fact was no work shortage as explained by the company upon the time of the initial terminations of the employment relationships.

The Labour Court: The extensions were made for objective reasons

The Labour Court stated that extensions of employment relationships do not necessarily have to be based on extraordinary reasons. However, several successive fixed-term employment contracts must have objective reasons, e.g. business reasons, in order to avoid abuse and circumvention of the rules on notice periods as set out in the Danish Salaried Employees Act. The objective reasons must be present at the time of the first extension of a fixed-term employment contract.

The Labour Court determined that the company did not abuse the access to apply fixed-term employment contracts. The court took into account that the second and third extensions of the fixed-term employment relationships were found necessary for business reasons: The delayed outsourcing to China, the increased intake of orders and the fact that the expected relocations of some of the employees were not possible yet.

Moreover, the Labour Court found that the employees were aware of the reason for the changed effective date of termination when they accepted their respective extensions. Additionally, the Court took into account that the new fixed-term employment contracts did not constitute a circumvention of the rules set out in the Salaried Employees Act, because the extensions were both agreed upon and based on objective reasons to extend the employments for a shorter period of time and limited to a specific period of time.

On this background, the extensions of the fixed-term employment contracts did not lack merits and the Court gave judgment in favour of the company.

IUNO’s opinion

The judgment illustrates that extensions of fixed-term employment contracts do not necessarily need to be based on extraordinary circumstances. As long as the business reasons are objective, substantive and limited in time there are sufficient grounds for extending the fixed-term employment contracts.

However, whether an extension of a fixed-term employment contract is based on objective reasons depends on a specific assessment and companies ought to be careful when establishing several successive fixed-term employment contracts or relationships.

Before extending a fixed-term employment contract, companies shall ensure that the reasons for extension can be found in business reasons such as the need for extra working capacity because of maternity leave or illness. If in doubt, companies ought to seek legal guidance in relation to this specific assessment.