Fixed-Term Employment Contract: rules and risks 2026

Although a fixed-term employment contract is considered an exception under the Labour Law, in practice it is very often used as a rule when hiring employees, particularly new hires. Employers frequently perceive it as a form of a “trial period”, despite the fact that probation as a legal institute already exists and has clearly defined statutory limits.

The Labour Law, however, favors the conclusion of employment contracts for an indefinite period (commonly referred to as “permanent employment”), precisely because this form of employment provides greater stability for employees and predictability in the labor market. Nevertheless, the possibility for the employment relationship to terminate automatically upon the expiry of the agreed term, without conducting a dismissal procedure, is highly attractive to employers. For this reason, employers are often willing to assume certain legal risks, relying on the assumption that a dispute will not arise.

In this text, we examine when a fixed-term employment contract is lawful, in which situations it transforms into an indefinite-term employment contract, why it frequently leads to labor disputes, and what lawful alternatives are available to both employees and employers.

What Is a Fixed-Term Employment Contract?

The Labour Law provides that a fixed-term employment contract may be concluded only when the duration of the employment relationship is determined in advance, i.e. when its duration is objectively limited by:

• a specific period of time,

• the completion of a specific task, or

• the occurrence of a specific event.

Therefore, in the case of a fixed-term employment contract, the decisive factor is not the employer’s preference as to the type of contract, but rather the existence of a genuine and justified reason why the employment relationship cannot be concluded for an indefinite period.

In practice, however, fixed-term contracts are often concluded without any real justification, solely based on the employer’s desire to retain greater flexibility with respect to terminating the employment relationship.

In the event of a court dispute, the title of the contract (fixed-term employment) loses its significance, as courts consistently assess the factual circumstances rather than the formal designation of the contract.

Maximum Duration of a Fixed-Term Employment Contract

The general rule under the Labour Law is that a fixed-term employment relationship with the same employer may not last longer than 24 months.

This period includes:

• all consecutive fixed-term contracts,

• all extensions of such contracts, and

• interruptions shorter than 30 days.

It is particularly important to emphasize that an interruption shorter than 30 days does not break the continuity of the fixed-term employment relationship. In this way, the law prevents the artificial resetting of the statutory time limit through short-term interruptions.

Exceptions to the Maximum Duration Rule

The Labour Law provides for exceptions under which a fixed-term employment contract may last longer than 24 months, but only in clearly defined situations, such as:

• replacement of a temporarily absent employee;

• employment on a project until its completion;

• employment of a foreign national until the expiration of the work permit;

• employment with a newly established employer (up to 36 months);

• employment of a person who lacks up to five years to meet the conditions for old-age retirement.

These exceptions are interpreted restrictively.

When a Fixed-Term Contract Becomes an Indefinite-Term Contract

The law stipulates that an employment relationship shall be deemed to have been established for an indefinite period, particularly when:

1. the fixed-term employment contract was concluded contrary to statutory requirements;

2. the employee continues to work for at least five working days after the expiration of the contract, and the employer does not object;

3. the employer continuously extends fixed-term contracts without the existence of a genuine and justified reason for concluding them.

In court practice, such situations are a common cause of labor disputes, and courts consistently take the position that the abuse of fixed-term employment contracts cannot be tolerated.

Why Fixed-Term Contracts Often End Up in Court

Judicial practice shows that labor disputes arising from the unlawful use of fixed-term employment contracts most often occur only after the employment relationship has фактически ended. In other words, former employees typically initiate court proceedings only after the termination of their employment, seeking a judicial determination of abuse and violation of their rights.

Labor disputes related to fixed-term employment contracts most commonly arise in the following situations:

• the employee worked for the employer for several years, until the employer informed them that their “employment contract had expired due to the lapse of the agreed term”;

• employers formally rely on “temporary needs” that, in practice, become permanent;

• the reason for concluding a short-term contract is vaguely or inadequately defined;

• employees learn about their labor rights not from their employer, but from third parties.

It is also a fact that even employees who are aware of their rights often agree to such contracts out of fear of losing their job or due to uncertainty in the labor market. As a result, disputes most often arise precisely when the employment relationship ends without renewal, and the employee realizes that they have been working for years under conditions contrary to the law.

Rights of Employees Under a Fixed-Term Contract

It is important to emphasize that an employee working under a fixed-term employment contract has the same rights and obligations as an employee employed for an indefinite period.

This includes:

• the right to remuneration;

• the right to annual leave and sick leave;

• occupational safety and health protection;

• compliance with working hours and rest periods;

• protection against discrimination and workplace harassment.

The only difference between these two forms of employment lies in the duration of the contract, not in the scope of the employee’s rights.

Termination of a Fixed-Term Employment Contract

A fixed-term employment contract terminates:

• upon the expiration of the agreed term;

• upon completion of the task for which it was concluded;

• upon the occurrence of the agreed event.

Unlike indefinite-term employment contracts, the termination of a fixed-term employment contract does not require a dismissal procedure, unless otherwise stipulated by the contract itself. This is precisely what makes this form of contract attractive to employers, but also risky from the perspective of legality.

Although the law does not require the employer to issue a separate decision on the termination of employment due to the expiration of the contract term, this is recommended for at least two reasons:

1. it is fair to inform the employee that their contract is expiring and when;

2. without an explicit termination decision, the employee may continue to work after the expiration of the contract, and after five days of such factual work, the employment relationship will be deemed to have been converted into an indefinite-term employment contract.

Most Common Abuses of Fixed-Term Employment Contracts in Practice

In practice, situations that carry significant legal risks for employers frequently arise, such as:

• concluding fixed-term contracts without a genuine justification;

• “automatic” extensions of contracts without reassessing their justification;

• interruptions shorter than 30 days intended to circumvent the 24-month limit;

• keeping employees on fixed-term contracts for years while performing the same tasks.

Such practices most often lead to court disputes and the reclassification of the employment relationship as indefinite-term employment.

Lawful Alternatives to Fixed-Term Employment Contracts

In situations where an employer wishes to assess an employee’s capabilities or organize work more flexibly, the law already provides alternative solutions, such as:

• an indefinite-term employment contract with an agreed probationary period;

• a fixed-term employment contract for a clearly defined project;

• engagement under other legal bases, provided that statutory conditions are met.

Abuse of fixed-term employment contracts is often the result of an incorrect assessment rather than a genuine business need.

Conclusion

A fixed-term employment contract is not a flexible tool that may be used at the employer’s discretion, but rather an exception that requires clear justification.

Its lawful application requires:

• the existence of an objective reason;

• compliance with statutory time limits;

• consistent application of legal rules.

The risk of violating the law in this area is borne by the employer not only in the form of misdemeanor sanctions, but also through the loss of control over the duration of the employment relationship, as such contracts are frequently transformed by courts into indefinite-term employment contracts.

Law Firm Petrović Mojsić & Partners