What Are the Rules When Using Fixed-Term Agreements in England and Wales?

As an employer, your employment contracts with your workers may not all be the same types of agreements. For example, you may have workers on permanent contracts or fixed-term agreements. Fixed-term agreements, also called fixed-term employment contracts or fixed-term contracts, can benefit employers as they allow you to employ your workers for a specific period known as a fixed term. As an employer, you should be aware of the different types of employment contracts, which will enable you to make sound contractual choices when employing your staff.

This article will explain the rules when using fixed-term agreements or contracts. It will explain what a fixed-term contract is and when you may find it helpful to use one. It will also explain some of the rules when using fixed-term agreements, such as your employees’ right to renew and end fixed-term agreements.

What is a Fixed-Term Agreement?

You may have many employees on fixed-term agreements. This is where they are employed by you but for a fixed amount of time. The fixed-term is a set time and may be defined by a:

• date;
• a project timeline or particular task; or
• a specific event.

When Might an Employer Use a Fixed-Term Agreement?

You may use a fixed-term agreement for employees, for example, to:

• employ specialists in a particular field;
• cover sickness;
• cover a maternity role; or
• employ seasonal employees.

How Must an Employer Treat Their Fixed-Term Employees? 

If you have employees on fixed-term agreements, you must not treat them less favourably than other employees carrying out a similar role. You may only do so if you can prove that you have a good business reason for this. 

For example, you must make sure that you give your fixed-term employees:

• equal pay and conditions to other employees;
• equal benefits;
• permanent job opportunity information; and 
• if the fixed-term employee has worked for you for at least two years, redundancy and dismissal protection are the same as permanent employees.

However, if you do treat your fixed-term employees less favourably than other employees, they are entitled to ask you to give a written reason why. If you fail to provide this when requested or provide a cause that is not reasonable, a tribunal could find you in breach of the law.

Ending Fixed-Term Agreements

When employing workers on a fixed-term agreement, you are not required to give them any notice as their agreement automatically on the date agreed upon.

However, you may end your employee’s fixed-term agreement earlier than stated. This is where the employment contract says that you can do this. However, you must follow any rules regarding this as detailed in the employment contract. If the employment contract does not detail notice for ending the fixed-term agreement early, you must give the statutory notice period. Where your worker has worked for you for one month or more, the notice period is one week. Where they have worked for you for two continuous years or more, the statutory notice period is one week per year that your employee has worked for you.

Renewing Fixed-Term Agreements

If you do not renew your employee’s fixed-term agreement, it could be a dismissal. Where your employee has worked for you for at least two years, you must show them that you have an acceptable reason for failing to renew their fixed-term contract. Fair reasons can be due to:

• your employee’s capability;
• your employee’s conduct;
• redundancy;
• not abiding by a statutory obligation; or
• substantial reasons. This may include where an employee was covering another employee’s maternity leave. You informed them at the start of their role that it would end when your other employee returned to work.

You should note that if you fail to renew your employee’s fixed-term contract but allow them to continue working, you are still required to give them notice should you wish to dismiss them. This is because you have created an implied agreement that the date your employee’s fixed-term agreement ends has changed.

Where you have renewed your employee’s fixed-term agreement for four years or more, your employee is normally automatically considered a permanent employee. However, this may not be the case if you can objectively justify why you used a series of fixed-term contracts.

Which Workers Are Not Fixed-Term Employees?

Certain workers are not considered fixed-term employees. These are workers who:

• are trainees, students or are on work experience;
• do not have a contract with you as their employer but with an agency instead;
• are an apprentice with an apprenticeship contract in place; or 
• belong to the armed forces.

Sometimes employment contracts can appear to be fixed-term agreements when they are not. Some examples are contracts which:

• state that you must give a notice period to end the contract at the date specified;
• have a fixed-term period at the outset but after that are open-ended; or
• are ‘evergreen contracts’, which means that they are successive fixed-term contracts automatically renewed after each other.

Key Takeaways

When employing your staff, you may find that fixed-term agreements are suitable for some job roles. For example, you may need to cover maternity leave or have times of the year when you require extra staff as your business is busier. There are also instances where you should not use fixed-term agreements, such as when your staff are on a work placement. Where you use fixed-term contracts, you must ensure that you understand the rules around ending the fixed-term agreement early or renewing the agreement. In addition, you should know that you must not treat your fixed-term employees less favourably than your permanent staff unless you have a reasonable excuse. 

If you need help understanding the rules when using fixed-term agreements in England and Wales, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

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