Our company hired an engineer as a contract employee for a one-year fixed-term. However, the employee was notified that the company would not renew the contract at the end of the one-year term due to insufficient work capacity and conflicts with other employees during the term of the contract. However, the employee insisted that refusal to renew the contract is unfair since he had received good HR results and believed his manager when that manager said that the contract would be renewed. In this case, how should the company respond?
For an employee who has entered into a labor contract for a fixed period of time, it is a matter of course that the status as employee is terminated as a result of expiration of the contract period. However, if there is a provision stipulating that the labor contract is renewed if certain requirements are met in the labor contract, employment rules, collective agreement, etc., or, in the absence of such a provision, if there is consensus that the labor contract is renewed if certain conditions are met among the parties to the labor contract, considering the circumstances surrounding the labor relationship, the employee is considered to have the right to expect the labor contract will be renewed accordingly. In such cases, unfairly refusing renewal is as invalid as unfairly dismissing someone. In this case, the labor relationship after contract expiration date should be regarded as if the previous labor contract had been renewed.
It is difficult to give a clearer answer without knowing the specific situation. However, if personnel evaluations were carried out uniformly, without distinction between fixed-term and non-contract workers, and if the purpose of the evaluation was not to determine renewal of a fixed-term contract but was for motivation or to pay incentives through simple assessment then even if the employee received a good evaluation result, a right to expect renewal of a labor contract will not be recognized. Also, if the immediate superior has no authority to renew the contract, or even if he/she has such authority, if the superior stating his opinion is not a promise for or guarantee of contract renewal, but only a mere mention of the possibility that the contract will be renewed, the right to expect contract renewal will not be recognized, unless there are circumstances that would dictate otherwise. It is important to have the employee understand that the company did not make an appointment for renewal of the contract and does not have any procedures or criteria for automatic contract renewal.