Fixed-Term Contracts

Types of Fixed-Term Contracts

While fixed-term contracts broadly define a type of temporary employment, the practice can be categorised into four main types: 

1. Pure FTCs: There is the “pure” fixed-term contract, which automatically expires upon the completion of the agreed period or project. Here, no notice is required, and there is no option to terminate the temp contract prematurely. 
2. FTCs with a Notice Clause: In such circumstances, early termination of the fixed-term employment contract is possible. Should the clause not be invoked, the employment would cease after the agreed period or task.
3. FTCs With Delayed Termination Periods: Some also contain an initial period during which notice to terminate the employment cannot be served. Once this period passes, termination of the fixed-term contract is permissible.
4. Evergreen contracts: With this type, the short-term employment contract will automatically renew upon its expiry unless terminated within a given timeframe.

Although there are four types, only the first two qualify as fixed-term contracts under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. According to these Regulations, such contracts are defined as employment agreements that naturally conclude upon reaching a specified end date, the conclusion of a particular task, or the occurrence or non-occurrence of a specific event.

What Are My Rights Under a Fixed-Term Contract?

A fixed-contract employee is protected from less favourable treatment compared to a permanent employee performing the same or similar work. This protection ensures equitable contract terms and access to benefits, including training, statutory sick pay, permanent job opportunities, and fair treatment during applications.

Employers are prohibited from excluding those on fixed-term contracts from pensions, except when the employment duration is less than two years, or bonuses. Moreover, these employees must be provided access to appraisals and shouldn’t be subject to additional bonus targets compared to their permanent counterparts.

They should also receive a fixed-term contract notice period if they’re dismissed early. At a minimum, this would be one week if they have worked continuously for a month, with an additional week added for each year of continuous employment thereafter.

Additionally, a fixed-contract employee is entitled to:

• The Pro Rata Principle: Ensuring they receive a proportionate share of pay or benefits compared to a permanent employee, based on their contract’s length.
• A Written Statement of Variation: Allowing them to query if their employment status has become permanent. Here, the employer must respond within 21 days.
• Objective Justification: Obligating the employer to justify any less favourable treatment, demonstrating that it was necessary, appropriate, and had a legitimate aim.

Time-Restricted Rights

Following one year of service, employees with a temp contract are entitled to a written statement of reasons. This enables them to request an explanation for any less favourable treatment while requiring their employer to respond within a 21-day timeframe. Employment rights after a two-year fixed-term contract improve further as individuals are protected from unfair dismissal and are entitled to statutory redundancy pay if made redundant.

Should an eligible employee on a short-term employment contract face unfair dismissal or less favourable treatment, they could claim compensation. If successful, the tribunal may award damages for financial losses deemed just and equitable, which could date back to 1 October 2002, when the Regulations were introduced. Additionally, the tribunal might declare the employee’s status as permanent or order the employer to rectify the unlawful treatment.

Advantages of a Fixed-Term Contract

For those entering the job market or seeking new career opportunities, fixed-term contracts can provide invaluable experience. These roles enhance a CV with new skills and offer the potential for permanent employment.

Additionally, a temp contract could offer a flexible solution for those who prefer not to commit to a long-term position. Employees can often set their own schedules and manage their commitments more effectively, and they may even have the chance to work for multiple employers simultaneously, potentially increasing their earnings.

Disadvantages of a Fixed-Term Contract

However, fixed-term contracts come with the drawback of limited job security. Since these roles are defined by a specific end date, employees will need to seek new opportunities once the contract concludes. This lack of long-term stability can make attracting candidates who value job security challenging.

Another disadvantage is the potential for reduced output. Building strong team cohesion can be difficult when employees are only part of the team for a limited period. This lack of continuity may impact the effectiveness of their work and potentially decrease overall productivity.

Finally, contract renewals could create a significant administrative burden without proper processes in place. Because fixed-term contracts are shorter, they require more frequent renewals than permanent contracts, potentially leading to a backlog of work if not managed efficiently.

FTC and Continuity of Work

Under section 212(3)(b) of the Employment Rights Act 1996 (ERA), periods when an employee is “absent due to a temporary cessation of work” still count towards continuous employment. This is crucial for employees on fixed-term contracts, as these periods don’t break their continuous service.

Key Elements of Temporary Cessation of Work:

1. Cessation of Work: This means a genuine halt in work availability for the employee. For instance, if a business temporarily shuts during a slow trading period. However, a cessation can occur if work ceases only for a specific employee. This was established in Fitzgerald v Hall Russell & Co Ltd, where a welder re-employed after an eight-week redundancy was able to claim continuity.
2. Absence Due to Cessation: The employee must be absent specifically because of the work cessation. The absence doesn’t count towards continuity if an employee leaves for another reason and is later re-employed. This is the case even if there was a temporary work cessation during that period. The primary reason for the absence must be scrutinised to confirm continuity.
3. Temporary Nature of Cessation: Unlike absences due to illness or injury, there isn’t a statutory limit on the duration of a temporary cessation. It must be genuinely temporary, but the specific length can vary.

Can a Fixed-Term Contract Become Permanent?

In the UK, fixed-term contracts automatically become permanent if an employee has worked for an employer for more than four years. That is, unless, the employer can justify the employee remaining temporary.

Additionally, these contracts can transition to permanent status if a permanent opening exists within the company. If the employee successfully applies for this position, their temporary contract will be replaced with a permanent one.

Renewing FTCs – What Does the Law Say?

By their nature, fixed-term contracts expire automatically once the agreed project is completed or a specified timeframe has passed. At that point, the employer may wish to renew the contract, but it’s considered a dismissal if they don’t.

If the fixed-contract employee has accumulated two years of service, they’re protected from unfair dismissal. In such cases, employers must be able to provide a fair reason for not renewing the contract. Legally, “potentially” fair reasons include:

• Conduct
• Capability
• Redundancy
• Contravention of a statutory obligation
• Some other substantial reason (SOSR)

Typically, non-renewal is based on redundancy or an SOSR. For redundancy, employers may claim that business needs dictate that they require fewer employees. As for an SOSR, it might be that the employee had been covering for someone on family leave who is now returning.

Can a Fixed-Term Contract Expire?

Generally, fixed-term contracts expire on an agreed date linked to a specified timeframe or project completion. The contract will automatically end once this date has passed, and the employee will be considered dismissed unless the contract is renewed.

One may wonder, “How long can a fixed-term contract last?” As mentioned, employees can only be kept on temporary contracts for up to four years. After this period, they will be considered permanent employees unless the employer can provide a valid justification for maintaining the temporary status.

Legal Remedies for Infringement of Fixed-Term Contracts

Employees can address an employer breaking a fixed-term employment contract through several remedies. Generally, such circumstances arise when an employee has been unfairly dismissed, or the employer has breached the contract terms.

Depending on the situation, the employee might start by having an informal chat with their employer. If appropriate, it could resolve the matter quickly and avoid unnecessary stress. If not, they may want to consider raising a formal grievance. Once raised, the employer is legally obligated to address it properly and respond within a specified timeframe.

However, the employee could turn to legal action if the issue remains unresolved. They would first need to go through ACAS early conciliation, but once complete, they could initiate employment tribunal proceedings.

If you have any questions about fixed-term contracts or believe your rights have been breached, get in touch with us now. Redmans Solicitors are employment law specialists, and with our years of experience, we could help navigate you through the legal process.

To begin, simply:

• Phone us at 020 3397 3603
• Request a chat via our online form