The Do’s and Don’ts of Fixed Term Contracts

Fixed-term contracts – a contractual relationship between an employee and an employer that lasts for a specified period – are a useful way for your business to resource short-term engagements such as maternity cover or long-term sick leave, specific project work or seasonal work.
However, there are several important points you need to be aware of when using fixed-term arrangements:

What rights do fixed-term employees have?

• The right to not be treated less favourably than comparable permanent employees, unless you have a good business reason to justify the differential treatment. This would include not receiving the same company benefits that are available to your permanent employees, or where you have failed to follow a process that you would have done had they have been a permanent employee.
• An employee employed for four years or more on successive fixed-term contracts may automatically become a permanent employee.
• Fixed-term employees may be entitled to a redundancy payment if they have worked for you continuously for two years or more. This arises where the reason for the non-renewal is redundancy.
• They also have the same statutory rights as permanent employees, such as the right not to be discriminated against and the right not to be unfairly dismissed (if they have over two years’ service).

How do I end a fixed term contract?

The non-renewal of a fixed-term contract constitutes a dismissal in law, which means that the individual might be able to claim unfair dismissal if they have accrued over two years’ service. Because of this, it is important to ensure that the reason for the non-renewal or early termination of their fixed-term contract is for a fair reason, and follows a fair process.
The non-renewal of a fixed-term contract usually gives rise to a redundancy situation because the role no longer exists or there have been budget cuts. If this is the case, as an employer, you should follow a fair redundancy process. If there are other employees who carry out the same or similar work, they should also be involved in the process.
While you can rely on the fact that the fixed-term period has come to an end, the process itself will depend on the reason for the non-renewal or early termination of the contract. Please get in touch with a member of the Howarths team to advise on the most appropriate process!

Can I end a fixed term contract early?

Terminating a fixed-term contract early will result in a breach of contract, unless the contract contains an early termination clause that allows either party to give notice. Otherwise, you may be liable for a claim for the balance of salary that the individual would have earned for the rest of the fixed-term period. To avoid this, you need to ensure that you have a contractual right to terminate the contract early.

Author: Anna Schiavetta, Employment Law Solicitor at Howarths