Employment contracts may be established for a fixed or indefinite term; however, the law limits the circumstances in which a fixed-term contract may be used, in order to prevent abuses that would deprive an employee of job security.
When Can a Fixed-Term Contract Be Used?
Under Article 11 of Labor Law No. 4857, a fixed-term employment contract may only be entered into where there is an objective reason: circumstances such as the completion of a specific job or the occurrence of a specific event (seasonal work, project-based work) justify a term limitation. It is not enough for the parties to simply state that the contract "shall be fixed-term" - if there is no objective reason, the contract is deemed indefinite-term by operation of law.
Chained (Successive) Contracts
Renewing a fixed-term employment contract successively multiple times (chaining) without an essential reason converts the contract into an indefinite-term contract from its inception. In judicial practice, renewals made solely to avoid job-security provisions, where the objective reason no longer continues, are treated as an indicator leading to indefinite-term status in the employee's favor.
Termination of a Fixed-Term Contract
A fixed-term employment contract, as a rule, ends automatically upon expiry of the term; neither party needs to give a separate notice of termination. For this reason, notice pay and severance pay do not, as a rule, arise for fixed-term contracts that end at the expiry of their term; however, if the employee has completed one year and the contract was ended by the employer not renewing it, different assessments may apply depending on the specific circumstances.
Conclusion
While a fixed-term employment contract offers flexibility for the employer, contracts not based on an objective reason, or renewed in a chained manner, may convert to indefinite-term status in the employee's favor. Correctly determining the type of contract is decisive for the rights and obligations that will arise.
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