What Should Employers Do When an Employment Contract is about to Expire?

What Should Employers Do When an Employment Contract is about to Expire?
What Should Employers Do When an Employment Contract is about to Expire?

After an employee performs works for a certain period, the employer regularly assesses the employee’s work performance, personnel needs, wage budget, etc. to consider whether the employee should continue in their company or not. This attaches special importance to employees who are on a fixed-term employment contract because once the contract expires, employers may be required to sign indefinite-term contracts to retain those individuals. Therefore, this article shall explain what employers should consider in dealing with employment contracts that are set to expire.

In case of employee retention

The ‘Labor Code’ has established provisions that benefit employees and safeguard their rights in the case of an expired employment contract. As a result, if the employee continues to work after the labor contract expires, the employee and employer must sign a new labor contract within 30 days after the expiration date of the previous contract. During this time, the two parties’ rights, responsibilities, and interests shall be performed under the previous contract. If neither party signs a new labor contract within such period, the previous contract shall become an indefinite-term labor contract.

Hence, if the employer chooses to keep the employee after the present labor contract expires, the employer shall have 30 days more following the expiration to sign a new contract. It should be highlighted that this 30-day time is for signing a new contract and not for deciding whether or not to continue working with the employee. The decision on whether or not to renew the contract must be made before the employment contract expires.

Furthermore, if the new labor contract is a definite-term labor contract, it may only be signed once more time after the expiration of the previous definite-term contract. If the employee continues to work after the expiration of the new contract, the employer must sign an indefinite-term labor contract. It means that the employer is obligated to sign indefinite-term labor contracts for employees who already finish 02 (two) definite-term labor contracts.

(This excludes the case of labor contract for a person hired as a director in a state-owned enterprise and the cases specified in ‘Clause 1, Article 149’, ‘Clause 2, Article 151’, and ‘Clause 4, Article 177’ of the Labor Code.)

In case employers do not want to retain the employees

As indicated in the preceding section, the employer must decide whether or not to retain the employee before the expiration of the existing labor contract.

As previously stated, while the employment contract sets the duration of the contract’s term, if the employee continues to work after the expiration of such term, the employer is obligated to sign a new contract with the employee.

Therefore, the Labor Code has laid down regulations on employers’ obligations to issue notifications regarding termination of labor contracts owing to expiration for conveying to the employee’s about their intentions of not renewing the expired labor contract. The regulation specifies:

” The employer must notify in writing to the employee of the termination of the labor contract when the labor contract is terminated by the provisions of this Code, except for the cases specified in Clauses 4, 5, 6, 7, and 8 Article 34 of this Code.”

Thus, the Labor Code requires the employer to notify the employee about the termination of the labor contract, but it does not provide a deadline. It merely states “ when the labor contract is terminated by the provisions .” As a result, it can be understood that the notice can be given at any moment as long as it is given before the employment contract expires.

However, the announcement should ensure the following factors:  

  • Written form signed by the competent representative of the employer.
  • The grounds of recognizing the employee for receiving the document.

In addition to the statutory factors, employers also need to choose an appropriate period to notify and facilitate the process of renewal or transition for employees looking for a new job. Currently, the legislation does not specify a time frame, but how long the notice is required to be given in advance will depend on the company’s policy. This may be confusing to the employer as the notice period must also be appropriate for the employee after taking many aspects like context, duration of attachment, work position, etc. into consideration.

Hence, employers should consider the above factors for contracts that are about to expire. In practice, situations can be more complex. So, to avoid unnecessary risks, employers need to study carefully about the labor regulations applicable to this issue.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.

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