Supreme Court decision a reminder to employers – concurrent fixed-term contracts in agency work may be illegal
According to the Supreme Court of Finland, a fixed-term contract in temporary agency work requires proper justification beyond the duration of an order or a rush period, explains Arja Pohjola, legal manager at PAM.
A group of 13 warehouse employees has won a legal dispute against the temporary work agency that had employed them. The employees all worked in the same company in the metal industry, and the temporary work agency kept concluding fixed-term contracts with them. The number of fixed-term contracts for each employee varied between three and ten. After that their contracts were no longer renewed.
The Supreme Court decided in May that the employment contracts were in practice valid until further notice and not fixed-term. This means that the employees were entitled to severance pay.
According to Arja Pohjola, the Supreme Court’s decision is a good reminder to employers that an employee working through a temporary work agency might have to have a permanent employment contract. Pohjola says that offering back-to-back fixed-term contracts for work that is continuous in nature may not be appropriate or legal, even if the employee is hired through a temporary work agency.
According to Pohjola, this ruling does not pertain to situations in which an employee is, for example, working for several different restaurants through the same temporary work agency.
“This is not relevant in such cases,” says Pohjola.
A permanent employment contract is better than a fixed-term one for employees, since they are entitled to severance pay if the employment ends. In addition, the employer has an obligation to rehire the employee or offer them other work if possible.
According to Pohjola, this is already the second Supreme Court ruling that considers temporary agency work just like any other employment in that the employer must provide proper justification for fixed-term contracts. The new ruling specifies what constitutes such proper justification, which may have been a little unclear in the previous decision from 2012.
Employees should not bear entrepreneurial risk
The temporary work agency’s justifications for the fixed-term contracts included the specifics of the “order” from the metal company, “assisting with peaks in demand for service or production”, “temporary need for labour” and “seasonal work”. According to the Supreme Court, these justifications are so general in nature that they cannot be used to directly assess whether the need for labour was indeed temporary. The estimated durations of the employment contracts were not tied to any objectively observable phenomenon.
According to the Supreme Court, the employment contract may be fixed-term if at the time of concluding the contract the assumption is that the work specified in the contract will no longer be available after its expiration.
The temporary work agency had no other client companies in the metal industry to which it could have transferred the employees. The order status of the metal company fluctuated.
According to the Supreme Court, uncertainty at the time when the employment contract is concluded regarding whether sufficient work will be available in the future is not sufficient grounds for a fixed-term contract. This constitutes transferring entrepreneurial risk to the employees, at least to the extent that they are not entitled to severance pay.
Severance pay required
HPL, the Private Employment Agencies Association, is an organisation representing agencies that offer temporary agency work. Merru Tuliara, CEO of HPL, agrees that the Supreme Court’s decision specifies the ruling from 2012.
“Employers should pay more attention to the justifications for fixed-term contracts,” says Tuliara.
She considers it important that the Supreme Court decided to evaluate the justifications for the fixed-term contracts based on the situation of the temporary work agency and the permanence of its ability to offer work, regardless of whether the client company would have sufficient justification to conclude a fixed-term contract.
The Supreme Court decided that the temporary work agency had to refund the employees’ severance pay as well as the associated holiday allowances. This means that the employees were given benefits equivalent to a permanent employment contract. However, the temporary work agency did not have to pay damages, as there were economic and production-related grounds for the terminations.