Fixed term contracts are often used by employers to cover time-limited projects or cover for employees on maternity leave or sabbatical. Employers often mistakenly believe that fixed term employees have fewer rights than permanent employees. In this article, we will explore the rights of fixed term employees and 5 key points employers need to be aware of before employing individuals on a fixed term basis:

1. Types of fixed term contracts “Fixed term contract” is a term used to loosely describe various different types of time-limited contracts, as follows:

   1. Pure fixed term: a contract for a limited period of time which will automatically expire at the end of the term without the need for notice. Neither party can serve notice during the fixed term.

   2. A fixed term with early termination: a contract for a limited period of time which will automatically expire at the end of the term without the need for notice, unless notice is given to terminate the contract before the expiry of the fixed term.

   3. A fixed term requiring notice: a contract for a limited period of time, which will not automatically expire at the end of the term, and is only terminable on notice which must be given before the fixed term ends.

   4. A fixed term, which becomes permanent: a contract for an initial fixed term during which notice cannot be served, but which becomes an open-ended and permanent contract after the initial fixed term.

   5. Evergreen fixed term: a fixed term contract which automatically renews unless notice is served by a particular date.

2. Breach of contract / wrongful dismissal If an employee is dismissed during a fixed term where there is no provision for either party to serve notice, there will be a breach of contract. The employee will be entitled to claim damages for loss of earnings for the unexpired period of the contract.
   

3. Successive fixed term contracts may become permanent* Employees who have been continuously employed for four years or more on a series of successive fixed-term contracts are automatically deemed to be permanent employees (unless the continued use of the fixed contract can be objectively justified). Employees can ask the Tribunal to make a declaration that they are permanent.
   

4. Protection from less favourable treatment* Employers must offer fixed term employees the same contractual benefits and facilities as those offered to comparable permanent staff, including pensions and access to permanent vacancies. Otherwise, they may face claims of less favourable treatment. Fixed term employees who are selected for redundancy on the basis of their fixed term status may also have a claim for less favourable treatment.
   

5. Unfair dismissal rights The non-renewal of a fixed term contract is considered a dismissal for these purposes

   1. Ordinary unfair dismissal: fixed-term employees with qualifying service (currently two years continuous service) have unfair dismissal rights in the same way as permanent employees. Employers should consider the reason for the dismissal. If the reason is redundancy, then they may be liable to pay the employee a statutory redundancy payment.  

   2. Automatic unfair dismissal*: The dismissal of a fixed term employee may be automatically unfair if the reasons is that the employee has (or the employer believes the employee has) sought to enforce their rights as a fixed term employee. Employees do not need qualifying service (currently two years continuous service) to bring a claim for automatic unfair dismissal. Employees may also have further claims if they are subjected to any detriment for the same reason.

*These rights only apply to employees engaged on pure fixed term contracts and fixed term contracts with early termination as set out above.

PRACTICAL TIPS:

1. Consider the most appropriate type of fixed term contract to use

2. Diarise the expiry date of the fixed-term and the date on which notice must be served (if that is the case)

3. Make decisions in good time before the end of the term to ensure there is sufficient time to follow a fair process (if the employee has qualifying service)

4. Make sure permanent vacancies are sent to all employees or placed on a central source

5. Audit remuneration and benefit packages to ensure parity with permanent employees

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