Fixed-term contracts – do you know what you need to know?

Five questions to test your knowledge…

1. A failure to renew a fixed term contract (or offer permanent employment instead) can be considered to be an unfair dismissal? Yes/no.
2. The obligation to ensure there is no less favourable treatment when employing a fixed term worker includes access to training offered to permanent employees? Yes/no.
3. A fixed-term employee is covering a maternity leave period gets pregnant. She then asserts her right to time off for ante natal appointments. You then terminate the contract as they soon won’t be able to do what they were employed to do. Will this be an automatic unfair dismissal finding at Tribunal? Yes/no.
4. Fixed-term employees have the right to request a written statement of the reasons for any less favourable treatment, e.g. training not being provided. The employer must respond to this request within: 3 weeks, 9 weeks, 12 weeks. 
5. To protect the business, building in a gap of one week between fixed-term contracts will be sufficient to break continuity of service? Yes/no.

You’ll find the answers at the end! But for now, back to what you need to know…

So, when should a fixed-term contract be used?

Referring again to the CIPD, fixed term contracts are appropriate for the following situations:

• Where someone is needed for a specific project, such as the implementation of a new system.
• Where the need for a particular post is uncertain and the employer wishes to carry out a ‘trial period’ before committing to a permanent position for the trialed role.
• To provide maternity cover, or to cover for someone on long-term sick leave.

However, after 2 years’ service, employees on a fixed-term contract will receive employment rights, and after 4 years’ service, a fixed-term contract will become permanent regardless of the employer or employee’s intention.

There is also specific legislation which protects the rights of employees working on a fixed-term contract called the Fixed Term Employee ‘Prevention of less favourable treatment’ Regulations published in 2002.

So, if you are currently using a fixed term contract in your business, be mindful of the following:

What are the rules around fixed-term contracts?

Ending a fixed-term contract

It wouldn’t be unreasonable to assume that when a fixed-term contract reaches its end date, the business and employee are both entitled to walk away from the contract without the need for any formalities.

However, it’s not always this simple. In the eyes of employment law, the end of the fixed-term contract, or failure to renew the contract, is considered a dismissal.

For employees with less than 2 years’ service, employers can dismiss or terminate the employment relationship without the need for a formal process, providing the contractual notice requirements are met. However, at Jaluch we often advise adopting an abridged version of a formal process if there is any possibility that the dismissal may become contentious.

For employees with 2+ years’ service, through an extended or continuous fixed-term contract, a formal process must be followed with the employee being dismissed for one of the 5 fair reasons for dismissal – capability, conduct, redundancy, statutory illegality or SOSR (some other substantial reason).

Examples of fair dismissal

To give you a few examples here consider an employee returning from maternity leave. This might result in the fixed term worker who had been covering the role being dismissed on grounds of SOSR (some other substantial reason). This is because the role still exists, but the employer is required to offer the permanent position to the employee on maternity leave.

Alternatively, a fixed term contract may end when a project has been completed. This is likely to be a redundancy dismissal. However, employers must consider whether the employee on the fixed-term contract should be pooled alongside permanent employees if there are similar roles. Failure to do so could prove less favourable treatment, which we will talk about more below.

To ensure clarity, in circumstances where the employee has over, or close to, 2 years’ service and the employer no longer wishes to continue the employment relationship, a fair process must be applied with the employees’ statutory rights observed.

Failure to follow the correct process could result in a claim for unfair dismissal.

If you would like support from Jaluch on how to conduct a fair dismissal process, contact one of our experienced consultants.

Less favourable treatment

Employees on a fixed-term contract have the right not to be treated less favourably than employees on a permanent contract, this right is upheld by the ‘Prevention of less favourable treatment’ Regulations published in 2002.

These rules can apply in a number of different ways, such as:

• Offering training equally to both permanent and fixed term employees.
• Providing the same benefits, such as pension or health care, to permanent and fixed term employees providing they meet the qualification criteria.
• Offering fixed term employees the opportunity to apply for permanent positions or internal promotions.
• Including fixed term employees in any pay reviews or pay increases.
• Businesses should not select an employee for redundancy based solely on their fixed term contract status.

Employers can choose to offer individuals on a fixed-term contract a greater benefit offering or remuneration package as there is no legislation which requires equal treatment with permanent employees.

If an employer does decide to treat fixed term contract workers differently, they must be prepared to justify a legitimate business aim for the less favourable treatment.

We think this could be relevant for businesses who are undertaking a salary or benefits review, or for businesses that are considering redundancies and may be inclined to place employees on fixed term contracts at risk before employees on permanent contracts.

Currently, there is no cap on compensation for a less favourable treatment claim, however the award is likely to reflect the loss of earnings suffered as a result of the less favourable treatment.

Automatic unfair dismissal

There are some instances where the termination of a fixed term contract can result in a claim for automatic unfair dismissal, these are typically related to a fixed term employee asserting a statutory right.

In layman’s terms, if a fixed term employee challenges their employer on an employment right associated with the regulations, less favourable treatment, or refuses to forgo a right protected by the regulations, and are subsequently dismissed, the employee can claim unfair dismissal without 2 years length of service.

Recent tribunal outcomes have shown us that even when the employer argues that the employee was dismissed for another reason and a process was followed, a tribunal may reject this and could still decide that the employee was unfairly dismissed following the assertion of a statutory right.

People Management quoted employment experts in 2024 as stating that Tribunals assessing cases of dismissal for asserting statutory rights will always find in claimants’ favour.

This does not mean you cannot dismiss an employee on a fixed term contract. But this does mean that if you receive a complaint from a fixed term employee about fair treatment, you need to tread carefully and should consider seeking advice from an HR professional.

Fixed-term contracts: are they worth it?

A question we have been asked recently: if there are so many additional rules and trip hazards for fixed-term contracts, what is the point in using them?

It’s a fair question.

Our answer is that fixed-term contracts do have a time and a place, however if your motivation for using a fixed-term contract is to easily exit employees or to quickly reduce staffing levels, they may not have the desired effect.

Quiz answers: 1. Yes, 2. Yes, 3. Yes, 4. 3 weeks (21 days), 5. Probably not.