Fixed-Term Employment Contract: In Which Cases Valid, In Which Cases Deemed Indefinite?

Table of Contents

• What is a fixed-term employment contract?
• Under what conditions can it be established? What are the essential reasons?
• When do chain contracts create risks?
• How does the contract terminate upon expiration?
• Is early termination possible and what are its consequences?
• How are compensation and other rights evaluated in fixed-term contracts?

What is a fixed-term employment contract?

A fixed-term employment contract is an employment contract in which the employment relationship between the employer and employee is limited to a specific period, and this period is explicitly agreed upon by the parties in the contract. The contract terminates automatically upon expiration of the agreed period, and no separate termination notice is required.

In Turkish Law, the rule is for parties to conclude indefinite-term employment contracts, while fixed-term employment contracts are exceptional in nature. Therefore, merely determining a termination date is not sufficient for the contract to be considered fixed-term.

For a fixed-term employment contract to be valid, there must be an essential reason that objectively demonstrates the determinability of the term due to the nature of the work or its purpose. Otherwise, the contract is considered indefinite-term regardless of the parties' intentions.

In practice, fixed-term employment contracts are mostly preferred for temporary work, projects with predetermined durations, or limited-term needs. However, it is clear that not every temporary need alone constitutes sufficient justification for concluding a fixed-term employment contract.

Under what conditions can it be established? What are the essential reasons?

For a fixed-term employment contract to be considered valid, there must be an essential reason that justifies limiting the contract to a specific period due to the nature of the work or its purpose. This requirement is a natural consequence of fixed-term employment contracts being exceptional in nature compared to indefinite-term employment contracts.

Essential reason refers to circumstances independent of the parties' will, arising from the work itself or its execution method, that prevent the continuity of the employment relationship. Additionally, it is important that this essential reason exists at the time of contract formation.

In practice, limiting the employment relationship from the outset is considered reasonable and foreseeable when work aimed at completing a specific project, time-limited projects, or activities that by their nature are expected to continue only for a specific period are involved. Conversely, it is generally not possible to perform continuously and permanently executed work with a fixed-term employment contract.

Therefore, when establishing a fixed-term employment contract, whether the work is truly time-limited and whether this limitation is based on an essential reason must be separately evaluated in each specific case.

When do chain contracts create risks?

The successive conclusion of fixed-term employment contracts is one of the areas that creates the most risk in practice. The main problem with chain contracts centres on whether the essential reason justifying each contract's fixed-term nature continues.

If an initially fixed-term employment contract is repeatedly renewed for the same work without an essential reason, the contract between the parties converts into an indefinite-term employment contract and becomes indefinite-term from the beginning. However, if an essential reason exists and continues, they retain their fixed-term contract characteristics.

Particularly when the employee continues the same work in the same position uninterruptedly and there is no essential change in the nature of the work, chain contracts create serious legal risks. In such cases, the contract may be considered indefinite-term from the outset.

Therefore, when planning renewals of fixed-term employment contracts, careful evaluation should be made as to whether each renewal is based on an essential reason.

How does the contract terminate upon expiration?

A fixed-term employment contract terminates automatically upon expiration of the agreed period. In this case, the parties do not need to give separate termination notice.

Termination by expiration of the term is not legally evaluated as dismissal. Therefore, notice period does not apply and notice compensation does not arise. The termination of the employment relationship is the natural consequence of completion of the period stipulated in the contract.

However, if the employee continues to work despite the expiration of the term and the employer does not object to this situation explicitly or implicitly, the employment relationship may convert into an indefinite-term one. In this case, the nature of the relationship between the parties is evaluated taking into account the actual working conditions.

Is early termination possible and what are its consequences?

A fixed-term employment contract generally continues until the end of the agreed term. Therefore, early termination of the contract is only possible if certain conditions exist.

• Termination for Just Cause: For both employee and employer, if "just causes" listed in the Labor Law exist, the contract can be terminated immediately without waiting for the term to expire. In terminations for just cause, the contract ends immediately.

Just causes generally cover situations where the other party seriously violates their fundamental contractual obligations. For example:

o Just causes for the employee: Employer's failure to pay wages, mistreatment of the employee, failure to comply with occupational health and safety rules, etc.

o Just causes for the employer: Employee's behavior contrary to morality and good faith principles, employee's illnesses that make work performance impossible, etc.

• Mutual Agreement (Termination Agreement): Employee and employer can terminate the employment relationship by mutual agreement without waiting for the term to expire. This is called a "termination agreement." With a termination agreement, employee and employer can freely agree on the consequences of termination (for example, compensation or additional payments to be paid to the employee).
• Special Conditions Specified in the Contract: In exceptional cases, the parties may have agreed in the contract that early termination can be made if certain conditions occur. However, such conditions must comply with laws and the principle of good faith.

How are compensation and other rights evaluated in fixed-term contracts?

When a fixed-term employment contract terminates upon expiration, this termination is not evaluated as dismissal. Therefore, the employee generally does not become entitled to notice compensation and severance pay.

However, if the contract is terminated before its term and without just cause, this situation will change. If one of the parties terminates the fixed-term employment contract before its term without just cause or mutual agreement, the other party's right to compensation will arise.

• From the Employer's Perspective: If the employer dismisses the employee before the term without just cause, the employee can claim the wages for the remaining period (and in some cases other benefits they were deprived of). However, it should be noted that in fixed-term contracts, unlike indefinite-term employment contracts, employees do not have the right to file a reinstatement lawsuit.
• From the Employee's Perspective: If the employee leaves the job before the term expires without just cause, the employer can claim compensation for damages suffered due to the employee's departure. These damages can generally be concrete damages such as expenses incurred to find a replacement for the employee or production losses at the workplace caused by the employee's departure.

GEMS Schindhelm's labour law department provides legal consultancy to its clients on the preparation of employment contracts, review of compliance with regulations, and protection of the interests of the parties.