Employment law sets out what employers can and can’t do when taking workers on under fixed-term contracts.  

The Employment Rights Bill, the flagship legislation of the Labour government, is set to radically reshape many aspects of employment law and practice. We won’t know for certain till the Bill is in its final form and is passed by Parliament. However, although moves to ban “exploitative” zero-hour contracts and give workers the right to a guaranteed hours contract have made headlines, the government has said that the plans won’t stop employees from working overtime and employers will still be able to offer fixed term contracts.  

Our employment law experts will monitor the progress of the Bill to ensure you’re kept up to date with developments.  

So what are fixed term contracts, what does the law say and what practical steps can employers take to ensure they stay compliant and protect both their workforce and their businesses? 

Understanding Fixed-Term Contracts

A fixed-term contract is an employment agreement that lasts for a specified period, after which it automatically ends unless renewed. 

Employees are on a fixed-term contract if: 

  • they have an employment contract with the organisation for whom they work; 
  • their contract ends on a particular date, or on completion of a specific task or project. 

Workers don’t count as fixed-term employees if they: 

  • have a contract with an agency rather than the company for whom they’re working; 
  • are a student or trainee on a work-experience placement; 
  • are working under a ‘contract of apprenticeship’; 
  • are a member of the armed forces. 

These contracts are commonly used for: 

  • Covering maternity or sick leave 
  • Seasonal work 
  • Project-based roles 
  • Temporary increases in workload 

Right not to be treated less favourably

Fixed-term employees have the right not to be treated less favourably in comparison to a colleague on a permanent contract. This right applies to treatment in relation to the terms and conditions of employment or being subject to any other form of detriment.  

The right not to be treated less favourably applies providing that the less favourable treatment is on the ground that the employee is on a fixed-term contract and the treatment is not justified on objective grounds.  

The right not to be treated less favourably would cover:  

  • Contractual benefits such as medical insurance  
  • Remuneration 
  • Bonuses 
  • Holiday / holiday pay 
  • Maternity leave, pay and parental leave 
  • Pension schemes  
  • Contractual redundancy periods 

Dismissing someone on a fixed-term contract

While they offer employers flexibility, fixed-term contracts also come with specific legal obligations, particularly concerning termination and renewal, and fixed-term workers are protected by employment legislation. Employers should therefore consider the following: 

  • If an employer wants to dismiss before the end of the fixed term, does the contract give them the right to terminate? If not, they will be liable for the unexpired part of the fixed term. 
  • Has the employee been employed for two continuous years, or will they have been by the end of the fixed term? If this is the case, they may have unfair dismissal and redundancy pay rights. 
  • If there is a disciplinary or dismissal procedure in the contract, then that should be followed before terminating the fixed-term contract. 

The fixed term contract should not be ended if: 

  • the work the person was employed to do has not finished; 
  • there are other vacancies in the business; 
  • it can’t be shown that it was for a fair reason.  

The employer’s risk of being taken to an employment tribunal after dismissing a fixed-term employee before the end of their contract can be reduced if: 

  • there is no other work the employee can do, and 
  • the correct procedures have been followed before dismissal. 

In the case of gross misconduct, fixed-term contracts can be terminated before the end of the term, so long as the correct procedures are followed and the reason for ending the contract is a fair one. 

Non-renewal of a fixed-term contract is viewed as a dismissal for the purposes of bringing an unfair dismissal claim. Fixed-term employees must have accrued 2 years’ continuous service to be eligible to make a claim.  

Automatic permanency 

An employee may not be considered as fixed-term if they have a succession of fixed-term contracts that have been extended or renewed, which have lasted four years or more. If these conditions are satisfied then they may be regarded as permanent. This is what’s known as “automatic permanency” and is covered by Section 8 of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.  

However, if the employer can demonstrate a good business reason to continue the fixed-term arrangements, then automatic permanency will not apply.  

Collective Agreements

A collective agreement between employer and unions, or a workforce agreement may modify the treatment of successive fixed term contracts with provisions which must specify one or more of the following:  

(a) the maximum total period for which the employee or employees of that description may be continuously employed on a fixed-term contract or on successive fixed-term contracts; 

(b) the maximum number of successive fixed-term contracts and renewals of such contracts under which the employee or employees of that description may be employed; or 

(c) objective grounds justifying the renewal of fixed-term contracts, or the engagement of the employee or employees of that description under successive fixed-term contracts, 

Takeaway Points for Employers

  • Proactive Compliance: Stay informed about legislative changes and proactively adjust contracts and policies to remain compliant. 
  • Documentation is Key: Maintain thorough records of hours worked, contract terms and any communications regarding employment status. 
  • Training and Awareness: Ensure that all staff, particularly those in HR and management, are trained on rights and responsibilities. 
  • Legal Consultation: Regularly consult with employment law experts to navigate complex situations and minimise legal risks. 

How can we help?  

There’s a lot to consider when drafting, implementing and updating fixed term contracts, especially considering the changes in the law which may well be coming soon and which will change a lot of aspects of the employee/employer relationship. To make sure you stay ahead of the law and keep your business legally compliant, why not contact our team of expert Employment law specialists to get a health check of your policies, procedures and practices?