Termination of an Employment Contract Due to the Expiration of its Term

In this article, I will try to briefly overview one of the grounds for terminating an employment contract (Article 37, Paragraph 1, Subparagraph "b" of the Labor Code: expiration of the term of the employment contract) which is indicated in the Organic Law of the Labor Code. At the same time, as a lawyer/attorney, I will briefly explain the interpretation of this norm from both practical and theoretical points of view. First of all, before directly moving on to the grounds for terminating an employment relationship, it is essential to consider that the Organic Law of Georgia, the Labor Code of Georgia (hereinafter briefly referred to as the Labor Code), is an organic law. An organic law, unlike an ordinary law, stands hierarchically higher and at the same time carries greater legitimacy (its adoption/amendment requires more votes in the parliament than an ordinary law). Moreover, the majority of the norms in the Labor Code are of an imperative (mandatory) nature rather than dispositive. (The difference between the two is merely that in the case of a dispositive norm, the parties may agree on a rule different from the norm, whereas in the case of an imperative norm, any other agreement/expressed will is considered void, regardless of whether it is the result of the expressed will of both parties);

In total, there are 14 factual circumstances that serve as grounds for terminating an employment contract, which allow an employer to terminate the employment contract. Terminating an employment contract on any ground other than these 14 grounds is impermissible. If an employer uses a different ground, this expression of will is void from the outset. I will try to provide a brief explanation for each factual circumstance that can become a ground for terminating an employment contract. Article 37.1.b of the Labor Code – due to the expiration of the term of the employment contract. At first glance, this ground is clear to everyone. However, to understand when the factual circumstance might arise under which the employment relationship between an employer and an employee can be terminated, we must first explain the term of an employment contract. Then we must differentiate between fixed-term and open-ended employment contracts, and only after that can we speak about the termination of an employment contract due to the expiration of its term;

The form of an employment contract can be either oral or written. But if the employment relationship lasts for more than three months, it absolutely requires a written form. In addition, an employment contract is concluded for a fixed term (for a period of less than 1 year) if there are several so-called preconditions for concluding such a contract, namely:
Precondition 1 – A specific volume of work is to be performed (for example, painting hotel rooms, which is expected to be finished in 4 months, and the employment relationship is terminated from the moment the work is completed; i.e., employment is realistically tied to the volume);
Precondition 2 – Seasonal work is to be performed (seasonal work means the factual circumstance the employer finds themselves in, i.e., their activity/production increases with the season. This could be, for example, hiring a person during the grape harvest (rtveli) to prune the vineyard. It is similar to volume but also coincides with an external factor related to the employer's activity);
Precondition 3 – The volume of work temporarily increases (this refers to a period when, unlike the employer's regular production/activity, the demand for their products on the market increases and/or the client demands more than originally planned);
Precondition 4 – Replacement of an employee temporarily absent from work due to grounds for suspending the employment relationship (this refers to the suspension grounds provided in the Labor Code. For example, during a vacation period, the obligations assigned to an employee must be fulfilled by another employee, but the "return" of the main employee to work results in the termination of the employment contract with the replacing person);
Precondition 5 – There exists another objective circumstance that justifies concluding the contract for a fixed term (this is a highly unrestricted category realistically given to the employee because the law cannot list all possible factual circumstances. However, for a person to be given, for example, an 8-month employment contract instead of a 1-year one, it must be explained by an objective circumstance; meaning, a third party evaluating it should also assess the fact as an objective precondition. In my opinion, this could be, for example: introducing a new product to the market and setting a specific term for the popularization of this product. However, concluding employment contracts on this basis is rare);

Based on Article 6.1.3 of the Labor Code, fixed-term employment contract(s) can turn into an open-ended employment contract if "the employment contract is concluded for a term of more than 30 months, or if the employment relationship continues as a result of consecutively concluding fixed-term employment contracts two or more times and its duration exceeds 30 months, it shall be deemed that an open-ended employment contract has been concluded. Fixed-term employment contracts shall be deemed consecutively concluded if the existing employment contract was extended immediately upon its expiration or the subsequent fixed-term employment contract was concluded within 60 days after the expiration of the first contract." Accordingly, if a person is initially contracted for 12 months, then again for 12 months, and after that for another 6 months (in total, if the employee worked for the employer for two and a half years, then an open-ended employment contract is already in place. A 60-day break between contracts is not taken into account, and the relationship is still considered an open-ended employment contract);

If, during an oral contract, the employer indicates as the basis for terminating the contractual relationship that the contract was concluded for a period of up to three months and was terminated due to the expiration of the term, they must also substantiate what purpose justified concluding the contract for a short term. Thus, allowing an oral form for up to three months should not be perceived as an opportunity for employer arbitrariness within this term;

The main difference characterizing fixed-term and open-ended employment contracts is that the fixed-term one is tied to a term, and with the expiration of the term, the employment relationship is also terminated. However, an open-ended contract provides higher protection for the employee, and justifying the termination of an employment contract with them requires a higher burden of proof from the employer. At the same time, the restriction on a three-month employment contract, as well as the ground for transforming a fixed-term contract into an open-ended one, has an exception. Namely, according to Article 6.1.4 of the Labor Code: "The restrictions established by this article on the conclusion of a fixed-term employment contract do not apply to an entrepreneurial subject provided for in paragraph 1 of Article 2 of the Law of Georgia 'On Entrepreneurs,' if 48 months have not passed since its state registration (start-up enterprise) and it meets additional conditions defined by the Government of Georgia (in case such conditions are established), provided that for the purposes of this paragraph the duration of a fixed-term employment contract cannot be less than 3 months";

Accordingly, an entrepreneur established, for example, in 2016, may not conclude written contracts or may regulate the terms of employment contracts at their discretion if 48 months have not passed since the establishment of the enterprise. The law allowed this exception for the development of entrepreneurial activities so as not to completely bind newly established entrepreneurial companies to the Labor Code. As a lawyer, I have seen in practice—and there are still cases—where an employee is in an open-ended employment contract with an employer, but the employer concludes an additional fixed-term contract, thereby attempting to convert the open-ended employment contract into a fixed-term one in order to justify the termination of the employment contract after the expiration of the latter;

First and foremost, this action is void from the outset. In one case, the Supreme Court explained that: "According to the Cassation Court's interpretation, transferring an employee employed for an indefinite term to a fixed-term employment contract with the aim of dismissing them from work after the expiration of the term, besides being illegal based on the motives of equal treatment of employees, is also dangerous, because in such a case, discriminatory motives for dismissing a person under the guise of the so-called 'expiration of the term' can be hidden" (see SCG No. as-940-890-2015; February 22, 2016);

In some cases, problematic issues also arise, such as: if a person has been employed in one position for, say, three years (36 months, which exceeds the 30-month period for the employee to be considered in an open-ended employment relationship by 6 months). Hypothetically, if this position is, say, a cashier. Accordingly, if in the 37th month they are appointed to a new position, say, a manager. In such a case, since the subject of the employment contract changes (the essential conditions of the contract, salary, start and end time of work, etc.), does the 30-month term of the employment contract start over for the person, or should the person's employment be considered continuous despite the fact that their position changes?

The Labor Code does not provide an exact answer to this specific question regarding a contract posed in this way. However, I believe that even though the essential conditions of the contract may change, the main starting point is that labor law belongs to the protection of the employee and the means of protecting their protected sphere. Accordingly, a change in the position of a person who performs work and is already in a fixed-term employment contract with an employer cannot affect whether their employment contract is fixed-term or open-ended, because two things do not change: neither the employer nor the employee. If we give preference to the second view, then there is a real danger of the "disappearance" of the period worked. At the same time, there is a risk that the court may consider it differently, because an employment relationship is characterized by essential conditions, and since an essential condition changes, this is no longer an additional agreement but a new contract with corresponding consequences;

Since the term is an essential condition of the contract that requires an agreement between the parties: "Determining the term for the fulfillment of an obligation by the parties stems from the principle of freedom of contract recognized in civil law, which found normative reflection in the first part of Article 319 of the Civil Code – subjects of private law can freely conclude contracts within the framework of the law and determine the content of these contracts. They can conclude contracts that are not provided for by law but do not contradict it. Accordingly, the parties have complete freedom to agree on the terms of fulfilling an obligation. By this, they determine the time of fulfilling the obligation of their own will. When the moment of the occurrence of any event is clearly defined by the contract, a contract concluded for a specific term is present. Otherwise, a contract concluded for an indefinite term is presumed" (Decision of the Tbilisi Court of Appeals of July 17, 2015, on case # 2b/1152-15);

A solution to this could be that the employee, if their position, etc. changes, should demand that the term of the contract's validity not be changed and that the already existing term be counted into the term of the employment contract. Any indication to the contrary from the employer is, in my firm belief, void, because a transaction drawn up in such a way contradicts the Labor Code as an organic law;

In my legal practice, I have also encountered the problem where, instead of short-term employment contracts, an employer calls such a contract a contract of independent contractor (contract for work and materials), which is characterized by a lesser protection mechanism than an employment contract. Furthermore, such contracts are sometimes used by large employers towards employees so that they do not demand leave, compensation upon dismissal, so the burden of proof does not change, etc. First of all, the element of an independent contractor agreement is, of course, included in an employment contract (as well as an agency agreement), however, it is not an independent contractor agreement, because unlike them, the principle of subordination is introduced (one obeys the other, whereas in a contractor agreement both parties are on the same level), as well as the principle of orderliness (during a contractor agreement, exactly what time within 30 days I will complete the work does not need to be specified, whereas labor implies I must work this many days in 30 days, rest this many days, come at a certain time, etc.). Moreover, calling such an agreement a "service contract" is nothing other than an unlawful use of rights by employers;

The Supreme Court explained in one case that: "Regarding the legal relationship of an independent contractor, this issue is fully regulated by Articles 629-656 of the Civil Code, as well as by all the general provisions of contract law that are not regulated by the aforementioned special norms. The main feature characterizing the validity of this relationship is that the mutually binding, onerous relationship is characterized by a consensual nature; that is, it is considered to have arisen from the moment the parties agree on the essential conditions of the contract (Article 327.1 of the CC), and throughout the entire period of the contractor agreement, the equality (independence) of its subjects is maintained, which is oriented toward achieving the goal of the contract and is not characterized by organizational subordination. The employment relationship, according to Article 7 of the Labor Code, is considered to have arisen from the moment the employee actually begins performing the work, unless otherwise determined by the employment contract. In terms of violating an obligation, both the primary and secondary claims of the creditor and the debtor differ: if in an employment relationship the employer is authorized to use the sanctions provided by the internal labor regulations or unilaterally terminate the relationship (Article 37 of the LC), when obligations arising from a contractor agreement are violated, depending on what the subject of the contract is, both the provisions provided by Articles 352 and 405 of the Civil Code, as well as the special regulations of the contractor agreement (Articles 636-637; 642-644 of the CC) are directly applied.;

Proceeding from the above, terminating an employment contract due to the expiration of the term of the employment contract, despite its apparent simplicity, still requires detailing. Moreover, it is impossible to interpret it as a whole if there is no factual circumstance to be explained, and this article only briefly explains it;